UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-38107
SoundThinking, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
47-0949915
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
39300 Civic Center Dr., Suite 300
Fremont, California
94538
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (510) 794-3100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.005 par value per share
SSTI
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered independent public accounting firm that prepared or issued its audit report ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. ◻
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant
recovery period pursuant to § 240.10D-1(b). ◻
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on a closing price of $12.18 per share of the Registrant’s common stock as reported on the Nasdaq
Capital Market on June 28, 2024 was $155,696,063.
The number of shares of Registrant’s common stock outstanding as of March 27, 2025 was 12,666,095
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on June 4, 2025, are incorporated by reference into Part III of this Report. Such Definitive
Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days following the end of the Registrant’s fiscal year ended December 31, 2024.
Table of Contents
Page
Special Note Regarding Forward-Looking Statements
1
Risk Factors Summary
2
PART I
Item 1.
Business
3
Item 1A.
Risk Factors
28
Item 1B.
Unresolved Staff Comments
59
Item 1C
Cybersecurity
59
Item 2.
Properties
60
Item 3.
Legal Proceedings
60
Item 4.
Mine Safety Disclosures
61
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
62
Item 6.
[Reserved]
63
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
64
Item 7A.
Qualitative and Quantitative Disclosures About Market Risk
79
Item 8.
Financial Statements and Supplementary Data
80
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
114
Item 9A.
Controls and Procedures
114
Item 9B.
Other Information
115
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
115
PART III
Item 10.
Directors, Executive Officers, and Corporate Governance
116
Item 11.
Executive Compensation
116
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
116
Item 13.
Certain Relationships and Related Transactions, and Directors Independence
116
Item 14.
Principal Accountant Fees and Services
116
PART IV
Item 15.
Exhibits and Financial Statement Schedules
117
Item 16.
Form 10-K Summary
117
Exhibit Index
118
Signatures
121
1
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained
principally in the sections of this Annual Report on Form 10-K entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business,” but are also contained elsewhere in this Annual Report on Form 10-K. Often, you can identify forward-looking statements by the words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,”
or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. Forward-looking statements include statements
about:
•our ability to continue to increase revenues, secure customer renewals and expand coverage areas of existing public safety customers;
•our ability to continue to add new customers for our public safety and security solutions;
•our ability to grow both domestically and internationally;
•our ability to effectively manage or sustain our growth;
•our ability to maintain, increase or strengthen awareness of our solutions;
•our ability to achieve and maintain service level agreement standards in our customer contracts;
•our ability to increase revenues, which has been impacted by supply chain disruptions and delays;
•future revenues, hiring plans, expenses, capital expenditures, capital requirements and stock performance;
•our ability to service outstanding debt, if any, and satisfy covenants associated with outstanding debt facilities;
•our ability to attract and retain qualified employees and key personnel and further expand our overall headcount;
•the impact of the material weakness in our internal controls and our ability to remediate this material weakness on the timing we anticipate, or at all;
•our ability to comply with new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
and
•our ability to maintain, protect and enhance our intellectual property.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for
each forward-looking statement contained in this Annual Report on Form 10-K, we caution you that these statements are based on a combination of facts and factors currently
known by us and our expectations of the future, about which we cannot be certain. You should refer to the “Risk Factors” section of this Annual Report on Form 10-K for a
discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these
factors, we cannot assure you that the forward-looking statements in this Annual Report on Form 10-K will prove to be accurate. We undertake no obligation to publicly update
any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should read this Annual Report on Form 10-
K and the documents that we reference in this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different
from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
2
SUMMARY OF RISK FACTORS
Investing in our common stock involves risks, including those discussed in the section titled “Risk Factors”. These risks include, among others:
•If our business does not grow as we expect, or if we fail to manage our growth effectively, our operating results and business prospects would suffer.
•Any interruptions or delays in service from our third-party providers could impair our ability to make our solutions available to our customers, resulting in customer
dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.
•If we are unable to sell our solutions into new markets, our revenues may not grow.
•Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, including the availability of funding to our customers.
•Our quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.
•Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our
operating results until future periods.
•We have not been profitable in the past and may not achieve or maintain profitability in the future.
•We may require additional capital to fund our business and support our growth, and our inability to generate and obtain such capital on acceptable terms, or at all, could
harm our business, operating results, financial condition and prospects.
•Contracting with government entities can be complex, expensive, and time-consuming.
•If we are unable to further penetrate the public safety market, our revenues may not grow.
•Our sales cycle can be lengthy, time-consuming and costly, and our inability to successfully complete sales could harm our business.
•Changes in the availability of federal funding to support local law enforcement efforts could impact our business.
•The failure of our solutions to meet our customers’ expectations could harm our reputation, which may have a material adverse effect on our business, operating results
and financial condition.
•Real or perceived false positive gunshot alerts or failure or perceived failure to generate alerts for actual gunfire or missed weapon detection could adversely affect our
customers and their operations, damage our brand and reputation and adversely affect our growth prospects and results of operations.
•The nature of our business may result in undesirable press coverage or other negative publicity, which could adversely affect our growth prospects and results of
operations.
•Economic uncertainties or downturns, or political changes, could limit the availability of funds available to our existing and potential customers, which could materially
and adversely affect our business.
•The nature of our business exposes us to inherent liability risks.
•As a result of our use of outdoor acoustic sensors and cameras, we are subject to governmental regulation and other legal obligations, particularly related to data privacy,
data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could
impair our efforts to maintain and expand our customer base, and thereby decrease our revenues.
•Failure to protect our intellectual property rights could adversely affect our business.
3
•Systems and Organizations Controls 2 (“SOC2”), Criminal Justice Information Services (“CJIS”) and Health Insurance Portability and Accountability Act (“HIPAA")
requirements could potentially cause obligations that we are not able to completely perform which could adversely affect our reputation and sales, as well as the
availability of our solutions in certain markets.
•Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our
sensitive information and information technology systems, and those of the third parties upon which we rely. These attacks could materially disrupt our systems and
operations, supply chain, and ability to produce, sell and distribute our products and services.
•Ongoing social unrest may have a material adverse effect on our business, the future magnitude or duration of which we cannot predict with accuracy.
PART I.
Item 1. BUSINESS
Overview
We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement, security teams and civic
leadership. As of December 31, 2024 we had approximately 328 customers and to date have worked with approximately 2,100 agencies to help drive more efficient, effective,
and equitable public safety outcomes.
Our SafetySmartTM platform includes six data-driven tools consisting of: (i) our flagship product, ShotSpotter®, our leading outdoor gunshot detection, location and
alerting system trusted by 177 cities and 20 universities and corporations as of December 31, 2024, (ii) CrimeTracer™ , a leading law enforcement search engine that enables
investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to
solve cases, (iii) CaseBuilder™, a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™, which directs the
deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety, (v)
PlateRanger™ powered by Rekor®, an advanced license plate recognition ("ALPR") and vehicle identification solution that leverages artificial intelligence ("AI") and machine
learning to enhance investigative efficiency and provide real-time data sharing for law enforcement, introduced in July 2024 through a strategic partnership with Rekor Systems,
Inc. and (vi) SafePointe™, an AI-based weapons detection system. We also offer other security solutions within our flagship product offering ShotSpotter, including,
ShotSpotter for Campus and ShotSpotter for Corporate, that are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses and
key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. We
offer the majority of our solutions on a software-as-a-service subscription model to our customers. SoundThinking Labs supports innovative uses of the Company's technology
to help protect wildlife and the environment.
As of December 31, 2024, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for over 1,076 square miles, of
which over 1,074 square miles had gone live. Coverage areas under contract included 177 cities and 20 universities and corporations across the United States, South Africa,
Uruguay, Brazil and the Bahamas, including some of the largest cities in the United States. Most of our revenue is attributable to customers based in the United States. Since
our founding over 28 years ago, SoundThinking has been and continues to be a purpose-led company. We are a mission-driven organization that is focused on improving public
safety outcomes. We accomplish this by earning the trust of law enforcement and providing them solutions to help them better engage and strengthen the police-community
relationships in fulfilling their sworn obligation to serve and protect all. Our inspiration comes from our principal founder, Dr. Bob Showen, who believes that the highest and
best use of technology is to promote social good. We are committed to developing comprehensive, respectful and engaged partnerships with law enforcement agencies, elected
officials and communities focused on making a positive difference in the world.
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Industry Background: The Public Safety Gap
Local police departments are challenged to serve and protect in an increasingly transparent fashion without unintentionally over-policing and under serving their
communities. This mandate must be met while facing municipal budget pressures, evolving public safety policies, and calls for police reform, all while violent crime remains a
critical concern and case closure rates struggle to improve. There are three distinct problems associated with the public safety gap, which are discussed below.
The Violent Crime Problem
The majority of urban gunfire goes unreported. A 2016 report published by The Brookings Institute analyzing data collected from ShotSpotter and our customers suggests
that approximately 80% of the gunshots detected by our public safety solution are not reported to 911 by residents. Even in the instances when 911 calls are made, the
information reported by the caller is often incomplete or inaccurate as to the time and location of the gunshot. Furthermore, in many cases it is often difficult for the caller to
authenticate the incident as gunfire. In addition, we believe that in communities plagued by gun violence, there is often a lack of trust between the community’s residents and its
police force, which can exacerbate the underreporting of gunfire and create a vicious cycle of underreporting, lack of response and increased mistrust due to continued
unaddressed gun violence in the community. When gunfire is not reported or is reported inaccurately, law enforcement and medical personnel cannot address injuries nor
effectively investigate and solve related crimes or prevent future incidents.
The communities in which gun violence occurs suffer significant economic loss. A 2017 report by the Urban Institute, which studied the effect of gun violence in
Minneapolis, Minnesota, Oakland, California and Washington, D.C., noted that the perceived risk of gun violence imposed heavy social, psychological and monetary damages
in communities, including fewer jobs and lower economic vitality. The study concluded:
• In Minneapolis, each additional gun homicide in a given year was statistically correlated with 80 fewer jobs.
5
• In Oakland, every additional gun homicide in a given year was statistically associated with five fewer job opportunities in contracting businesses in the next year.
• In Washington, D.C., every additional gun homicide in a given year was statistically associated with two fewer retail and service establishments the next year.
In addition, several studies have suggested that property values are inversely correlated with violent crime. For example, the Center for American Progress conducted a
study of changes in homicide incidents and housing prices in Boston, Seattle, Chicago, Philadelphia, and Milwaukee, and found that a reduction in a given year of one homicide
in a ZIP code caused a 1.5% increase in housing values in that same ZIP code the following year.
Gut-based Patrolling Problem
Agencies face a resource deficit and need more efficient ways to patrol and prevent crime. Most departments use old patrolling methods that are non data-driven, have
limited visibility to officer activity and no controls to reduce over-policing. We believe the category is ripe for AI-based automation for more efficient and effective patrolling
done in a way that better engages the community and reduces crime.
Low Case Closure/Victim Resolution Problem
According to a report published by The Marshall Project in 2022, homicide clearance rates in the United States reached a 40-year low of less than 50% in 2021. Too many
suspects do not face the consequences and are free to commit additional crimes while victims and their families suffer without closure. Police use a mix of manual, homegrown
and limited function record management system ("RMS") modules for case management. To solve cases, detectives must access multiple, siloed sources of data with limited
automation tools for analytical support or collaboration. We believe investigative case management can significantly benefit from greater automation to improve clearance rates
and solves cases faster.
Our Vision
We see a world where data are converted into actionable intelligence thereby enabling law enforcement and security departments to implement modern 21st century public
safety practices. These practices can help police and security personnel be more efficient in directing interventions toward the relative few that commit crimes and present
security threats. These practices in turn help build community trust and engagement while co-producing positive public safety outcomes. We believe the SafetySmart platform
can be a valuable set of technological solutions for implementing 21st century public safety practices. The SafetySmart platform includes our flagship product ShotSpotter®,
CrimeTracer™, CaseBuilder™, ResourceRouter™, PlateRanger™ powered by Rekor®, and SafePointe, our AI-based weapons detection system.
Law Enforcement Services Platform
6
Security Market Services Platform
ShotSpotter
ShotSpotter, our acoustic gunshot detection technology serves cities and municipalities seeking to identify, locate and deter persistent, localized gun violence by
incorporating a real-time gunshot detection system into their policing
7
systems. ShotSpotter is used by local police departments and a version of ShotSpotter, branded as ShotSpotter for Campus and ShotSpotter for Corporate, are used by security
personnel in the protection of critical assets such as colleges, universities and commercial campuses.
Our gunshot detection solutions consist of highly-specialized, cloud-based software integrated with proprietary, internet-enabled sensors designed to detect outdoor
gunfire. The speed and accuracy of our gunfire alerts enable law enforcement and security personnel to consistently and quickly respond to shooting events including those
unreported through 911, which can increase the chances of apprehending the shooter, providing timely aid to victims and identifying witnesses before they scatter, as well as aid
in evidentiary collection and serve as an overall deterrent. When an impulsive sound is detected by our sensors, our system precisely locates where the incident occurred, and if
it determines there is a possibility the sound was caused by gunfire, sends its data for human review to analyze and validate the incident. An alert containing a location on a map
and critical information about the incident is sent directly to subscribing law enforcement or security personnel through an internet-connected computer or iPhone or Android
mobile devices.
Our software sends validated gunfire data along with the audio of the triggering sound to our Incident Review Center (“IRC”) that has locations in Fremont, CA and
Washington, D.C. where our trained incident review specialists are on duty 24 hours a day, seven days a week, 365 days a year to screen and confirm actual gunfire incidents.
Our trained incident review specialists can supplement alerts with additional tactical information, such as the potential presence of multiple shooters or the use of high-capacity
weapons. Gunshot incidents reviewed by our IRC result in alerts typically sent within approximately 45 seconds of the report of the gunfire incident.
Specialized Gunshot Detection Software
The heart of our gunshot detection solutions is our sophisticated and specialized software. Our software analyzes audio signals for potential gunshots detected by our
intelligent sensors. Our sensor filters out ambient background noise, such as traffic or wind, and looks for impulsive sounds characteristic of gunfire. If the sensor detects such
an impulse, it extracts pulse features of the soundwave, such as sharpness, strength, duration, rise time and decay time. Then, the sensor sends these features to our cloud servers
as part of a data packet that includes the location coordinates of the reporting sensor and the precise time of arrival and angle of arrival of the sound.
When the data reaches our cloud servers, our software assesses whether three or more of our outdoor sensors detected the same sound impulse and, if so, finds the location
coordinates of the sound source based on the time of arrival and the angle of arrival of the sound using the technique of multilateration. The accuracy of the locations derived
from our proprietary software is significantly improved when, as is typically the case, more than three sensors participate. We deploy our sensor arrays such that, on average, six
to eight sensors participate in the detection of a gunshot.
After the software determines the location of the sound source, our machine classifier algorithms analyze the pulse features to filter out sounds that are unlikely to be
gunfire. Our algorithms consider pulse features, the distance from the sound source, pattern matching and other heuristic methods to evaluate and classify the sound. The
machine classifier algorithm is periodically trained and validated against our large database of known gunfire and other community sounds that are impulsive in nature. We
continue to add new data to our machine learning database from the incidents reviewed by our incident review specialists in our IRC process. Incidents that are determined by
the machine classifier algorithms to be obviously non-gunfire are filtered out and not presented for human classification.
All incidents not filtered out by our machine classifier algorithms are sent to the incident review specialists in our IRC for analysis and human classification. Incident
notifications are sent when the incident is confirmed as gunfire by one of our incident review specialists and may include additional information that may be helpful to first
responders, such as the possibility of multiple shooters or use of a high-capacity or fully automatic weapon. Alerts are delivered using push notifications to our mobile, desktop
or browser applications and through email or SMS text messages. The time from a report of an outdoor trigger-pull to a notification being sent to our customers is typically
45 seconds or less.
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Intelligent and Ruggedized Sensors
Our rugged gunshot detection sensor is an intelligent, internet-enabled device that is specially built to ignore ambient noise and respond to impulsive sounds, accurately
time-stamping their arrival times. Advanced digital signal processing algorithms filter out background sounds such as traffic, and extract pulse features from the audio signal
that, along with the time and angle of arrival of the sound, are sent to our servers where algorithms compute the location of the sound source.
The sensors do not have the ability to live stream audio. Sounds captured by the secure sensors are permanently deleted after 30 hours. When a sensor is triggered by an
impulsive sound, the “incident” that is created includes a recording including no more than one second before the incident and one second after the incident. This audio snippet
is preserved indefinitely for potential evidentiary use.
Our sensors are designed and tested against international standards for installation in unprotected outdoor environments. Special consideration is given to minimize the
sound of wind, rain and hail, which could otherwise limit the range of detection and produce false results. Environmental condition tests performed on the sensors include
temperature cycling, temperature soak, shock, vibration, and salt, fog and moisture ingress protection.
We typically design and deploy arrays of 15 to 25 sensors per square mile taking into consideration the unique acoustic environment in which we are deploying. The
cumulative experience of deploying in various cities with different acoustic properties has provided a distinct advantage in tailoring our sensor arrays to perform at high levels.
We have full telemetry to each sensor that provides detailed data to our system to monitor each sensor’s health and availability. Sensor firmware is maintained with over-the-air
updates. Because we design our networks with a certain amount of redundancy to ensure durability, in our sensor arrays, multiple sensors can be offline at any given time
without affecting the overall performance of the system.
Incident Review Centers - Classification
Our IRC operates 24 hours a day, seven days a week, 365 days a year. When a loud impulsive sound triggers enough of our outdoor sensors that an incident is detected
and located, audio from the incident is sent to our IRC via secure, high-speed network connections for real-time confirmation. Within seconds of an incident, one of our incident
review specialists analyzes audio data and recordings of the potential gunfire. When gunfire is confirmed, our IRC
9
team sends an alert directly to emergency dispatch centers and field personnel through a computer or mobile device with access to the Internet. This process typically takes less
than 45 seconds from the report of the gunfire incident. Alerts include:
• the precise location of gunfire, including both latitude/longitude and approximate street address;
• the number and exact time of shots fired;
• if detectable, the involvement of multiple shooters; and
• if detectable, the use of fully automatic or high-capacity weapons.
Our IRC operates primarily out of our principal facilities in Fremont, CA and Washington, D.C. and receives audio from incidents detected by our outdoor sensors
regardless of where such incidents occur. Although our IRC normally operates from our offices, our trained personnel can perform IRC functions from any location that has a
high-speed internet connection.
Gunshot Detection Alerts
Our alerts are delivered in the following forms:
Real-Time Alerts
Our IRC sends real-time notifications of outdoor gunfire incidents to the ShotSpotter application, which is specifically designed for emergency communications centers,
dispatch centers, and other public safety answering points.
The ShotSpotter alert received by the ShotSpotter application includes a unique identification number (ShotSpotter ID number), a precise time and date of the gunfire
(trigger time), approximate street address of the gunfire, number of shots and police district and beat identification. One of our incident review specialists may add other
contextual information related to the incident such as the possibility of multiple shooters, high-capacity or fully automatic weapons and vehicles.
The 911 dispatcher may add their own notes relating to the incident in which case the notes are time- and date-stamped and indicate the operator’s identification. A
comprehensive audit trail of all changes to the incident is maintained that includes the time the alert was received and acknowledged by the dispatcher. These data may be used
to measure key performance indicators by dispatch personnel.
ShotSpotter Application
We offer a robust ShotSpotter application for use by patrol officers and security personnel that is available on iPhone or Android mobile devices and computers installed
in patrol vehicles and dispatch centers. This application allows field personnel to directly receive alerts of outdoor gunshots and related critical information. The alert includes a
unique identification number (ShotSpotter ID number), a precise time and date of the gunfire (trigger time), nearest street address to the location of the gunfire, number of shots
and police district and beat identification. One of our incident review specialists may add other contextual information related to the incident such as the possibility of multiple
shooters, or high-capacity or fully automatic weapons. In addition, the dispatcher may add their own notes. The alert also includes an audio snippet of the incident.
Mobile Device Support-Apple iOS and Android-phones/tablets and watches
10
Related Applications and Services
ShotSpotter Insight
11
All historical incident data in our database can be viewed, searched, sorted, and filtered using our ShotSpotter InSight application. The Insight application can create an
investigative lead summary report that describes the specifics of a single incident as reported by the IRC staff or a multiple incident report that lists groups of such incidents.
Complex filters may be defined using multiple search criteria and the filters named and saved for recurring use. Incident data may be exported for use in third-party
applications such as Excel, currently the tool of choice for police department crime analysts.
Integration Services
We believe that integrating our solutions with other tools and technologies enhances the value of our solutions to our customers. For example, our solutions can be used in
connection with: drones to access a crime scene to determine if there is a victim for which an ambulance is needed and to provide situational awareness for officers who are
heading towards the scene; video surveillance cameras to automatically point tilt and zoom them in the direction of gunfire, assist in feeding more bullet casings to the National
Integrated Ballistic Information Network (“NIBIN”) for ballistic matching and the identification of suspects and automated ALPRs used by law enforcement to improve the
investigation efforts. We continue to evaluate new technologies that may integrate with our solutions to generate additional value for our customers.
Detailed Forensic Reports and Certified Expert Witness Services
As part of our solution, we offer Detailed Forensic Reports (“DFRs”). These provide investigators and attorneys with comprehensive, court-admissible analysis of a
shooting incident, including the gunfire audio. We also offer expert witness testimony to introduce the forensic analysis of the DFRs at trial and to provide technical expertise
regarding our technology. Our forensic employees have testified in over 300 cases throughout the United States. Our forensic analyses have survived dozens of challenges in
numerous states, under both the Frye and Daubert standards of admissibility. The following is an example of a DFR.
Detailed Forensic Report:
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ShotSpotter Results and Benefits
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• Expedited Response to Gunfire. In 2024, we issued over 328,000 gunshot alerts to our customers. In areas where gun violence is persistent, we believe most gunshots
are not otherwise reported. Even when calls are made, many callers are unable to provide a location of the gunshot or other relevant details. Human response time to unfolding
violence often delays calls for several minutes in circumstances where response time can be critical. By contrast, our solutions typically alert emergency dispatch centers and
field personnel within 45 seconds of the report of the gunfire incident and provide an exact location, enabling them to respond faster and to a specific location. The ability to
respond more quickly increases the chances of apprehending the shooter and assisting victims of violence, in addition to aiding in evidence collection.
• ShotSpotter Potentially Helps Save Lives
The below graphic demonstrates positive impact results observed at a few of our customers.
1 - Oakland PD statistics 2023
2 - Albuquerque PD statistics 2022
3 - Las Vegas PD statistics 2023
4 - Baltimore PD statistics 2024
• Improved Police Officer Safety. We believe that our solutions provide additional and valuable information regarding gunshot incidents as the alerts we provide give
additional insight and situational awareness, including round count, potential multiple shooters and potential use of an automatic weapon, that allow the responders to be better
prepared to respond appropriately.
• Prevention and Deterrence of Gun Violence. We believe increasing the speed and accuracy of law enforcement responses to gunfire can act as a long-term deterrent
that can decrease the overall prevalence of gunfire. We also believe that knowledge of the existence of our solutions may have a deterrent effect on localized gun violence.
When elected officials and law enforcement have an enhanced awareness of gun violence activity and patterns, they have tools to facilitate a rapid and accurate response to
gunfire incidents and improve relations between law enforcement and these communities, potentially increasing crime reporting and community cooperation with
investigations, which can result in improved public safety.
• Improved Community Relations and Collaboration. We believe that persistent gun violence limits the ability of police and other community leaders to serve their
constituents and improve their communities. Many cities struggle to establish and foster a cooperative and trusting relationship between their police department and the
communities they serve. Our public safety solution provides cities with the ability to react quickly to gun violence, thus providing
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the ability to improve their responses and residents’ perception of their responses. This provides our customers with the opportunity to foster improved community relations and
collaboration with their residents.
CrimeTracer
CrimeTracer is the #1 law enforcement search engine that enables investigators to search through more than 1.3 billion structured and unstructured data across
jurisdictions to obtain immediate tactical leads, leverage advanced link analysis to make intelligent connections, link NIBIN leads to reports, suspects and other entities, and
more.
CrimeTracer provides law enforcement with the following capabilities:
• Advanced Search. CrimeTracer is the industry’s leading search engine for law enforcement, combining the simplicity of unstructured natural language search with the
power of structured field level and federated search. The result is that the information you are looking for will appear on the first page of results with the same ease as a Google
search.
• The Power of the Network. There is plenty of law enforcement data available to agencies across the United States. With CrimeTracer, we focus on providing the right
data. With what we believe is the most comprehensive set of data in the industry, we offer the singular ability to access critical and meaningful information from not only the
respective agency’s IT systems, but across the city, county, state and country.
• Public Investigative Data. Our alliance with Thomson Reuters CLEAR® means officers and analysts will have not only private law enforcement agency data but critical
public records data at their fingertips without having to toggle between disparate applications.
• Accelerating Investigations with Powerful Analytics. Advanced analytics and visualizations provide the ability to centralize and apply complex analytics across multiple
data sets. With this information, law enforcement analysts and investigators glean actionable insights, in real-time, that potentially help identify crime trends and prevent
criminal activity.
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• Simple and Accessible Across the Department. CrimeTracer is accessible from any centrally managed device and across all compliant networks. A seamless integration
with the user's existing infrastructure puts the power directly into the hands of law enforcement professionals, including patrol, investigators, analysts and command staff.
CaseBuilder
The average homicide clearance rate in the United States was less than 50% in 2021, according to a report published by The Marshall Project in 2022. This means that in
more than half the cases the suspect is not held accountable and is free to commit another crime while victims’ families don’t get closure A low clearance rate is a self-
perpetuating problem for a law enforcement agency. The problem starts when detectives can’t quickly close cases and clear up their case load, while they continue to catch new
ones. Soon they are overloaded with cases and as they attempt to juggle a high caseload, they get spread too thin and then leads start to slip through the cracks and the
opportunity to solve the case diminishes. In the longer term, this can create a moral problem within the investigative arm of the agency and they are exposed to losing
experienced detectives. This exacerbates the low clearance rates meaning victims are denied justice and the mistrust of law enforcement increases.
The most common tools that departments use to manage, track and solve cases range from purely manual to homegrown to limited function RMS modules or a mix of
these. These approaches lack robust collaboration features, have poor data security features and the inability for supervisors to track case progress. We believe there is an
opportunity to bring a complete digital case management solution to the market to help improve clearance rates of all crime types and accelerate solvability under the
SoundThinking brand and sell to both our installed base and new potential customers, such as prisons.
CaseBuilder provides a complete case management solution for detectives and supervisors in local, state and federal law enforcement agencies. It has been used by the
New York Police Department for years at scale by thousands of officers as an on-premises solution. The solution provides:
• Complete Digital Case Management. CaseBuilder addresses the challenges investigators and supervisors face in conducting and documenting investigations. It enables
police to have all case-related data in one place in a digital and structured format so that it is quickly searchable and able to be used to drive analysis and reporting. We believe
law enforcement agencies can use this tool to be more efficient and effective at solving crimes and close more cases to provide resolution for victims and keep offenders from
committing additional crimes.
• Analytical and Collaboration Tools. The ability to have the system automatically show linkages between people, property, and places can identify connections more
quickly and help solve cases faster. Collaboration tools make investigators aware when new relevant evidence is submitted for the same or unrelated cases, and able to more
easily communicate on a case across a police department or other city agency such as the district attorney’s office.
• Supervisor Reporting. Supervisor dashboards and reports ensure they have visibility into the status of every case and are aware of roadblocks so they know when to get
involved and can more easily provide updates to command staff.
How CaseBuilder works
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ResourceRouter
Law enforcement agencies today are tasked with an impossible feat: maintain an efficient, data-driven police force in the face of staffing shortages, data silos and outdated
manual report processes. ResourceRouter helps address this new reality by helping agencies make their largest cost center–patrol–more efficient and effective in reducing crime
and better engaging with the community.
ResourceRouter provides law enforcement agencies with the tools to strategically deploy patrols, manage spontaneous and planned responses, and ensure officers have the
real-time data they need to make informed decisions. This modernized approach to patrol management leads to more effective crime reduction and safer communities.
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ResourceRouter uses AI-driven analysis to direct officers to patrol a location within their beat that ensure officers are at the right place at the right time for crime
prevention during their shift. A timer guides officers to patrol this area for a short period of time, often 15 minutes, to create a deterrent effect that can last for hours. This
proactive strategy is a community-focused, long-term approach that deters major crime before it happens. Leveraging their data, agencies can allocate resources efficiently
while working within the community to reduce crime. ResourceRouter empowers patrol operations to manage both spontaneous and pre-planned deployments effectively.
Whether responding to a sudden spike in convenience store robberies over the weekend or strategically deploying resources for traffic control during a major NFL game,
ResourceRouter ensures that agencies can address both crime and non-crime-related issues with precision. This level of responsiveness enhances public safety and allows for
better resource allocation where needed most.
Information is power, especially in law enforcement. ResourceRouter provides officers in the field with real-time access to key operational and safety data through
pinpoint locations within integrated, interactive map layers. This ensures that officers are well-informed about their environment, leading to safer engagements and more
effective outcomes. ResourceRouter’s Insight feature provides agencies with key metrics to measure engagement and effectiveness. Law enforcement leaders gain valuable
insights into operational efficiency by analyzing how much time officers spend addressing specific issues and the tactics they use to address them. This data is helpful for
internal assessments and plays a significant role in demonstrating to the public the proactive steps to address crime and community concerns. Transparency fosters trust, and
trust strengthens partnerships between law enforcement and the communities they serve.
Results and Benefits:
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• Direct patrol officers to the right place and the right time for crime prevention.
• Empower patrol officers with real-time actionable insights for spontaneous deployment.
• Reports on officer activity for impact and accountability.
• Enhance community engagement.
• Provide patrol officers with easy access to key operational information and safety data.
PlateRanger powered by Rekor
In July 2024, SoundThinking, Inc. and Rekor Systems, Inc. announced a strategic partnership to create and launch a new end-to-end public safety solution,
“PlateRanger™, Powered by Rekor®.
Staffing shortages slow investigations and the ability to quickly locate suspects and close cases. Siloed data collection also takes additional time, making locating suspects
or investigative leads more difficult. PlateRanger™ powered by Rekor®, an ALPR and vehicle identification solution that leverages AI and machine learning to enhance
investigative efficiency and provide real-time data sharing for law enforcement.
PlateRanger’s vehicle and plate identification algorithms have been trained over many years and millions of images to be highly accurate and dependable in identifying
vehicles and license plates from every state. That data is shared in real-time to streamline investigations and enhance officer safety through situational awareness. Designed for
public safety, PlateRanger integrates seamlessly with other applications including real-time crime center, video management systems, and the SafetySmart Platform integrations
became available in late March 2025. PlateRanger can also use hot lists based on integration with National Crime Information Center ("NCIC") and other data such as Amber
and Silver alerts, and more.
Results and Benefits:
•Connects vehicles of interest associations through advanced analytics
•Creates faster, more relevant investigative leads
•Force multiplier that optimizes resource allocation and streamlines investigative processes
•Integrates with leading law enforcement databases and software
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•Provides valuable data for private sector clients security teams in managing potential safety, security and operational issues on their facilities
SafePointe
SafePointe is an AI-based weapons detection system designed for high throughput facilities. Unlike bulky legacy metal detection, SafePointe’s discreet form factor
enables guests and employees to quickly pass unobtrusively without disruption or the need for security personnel stationed at entrances. SafePointe’s ability to quickly screen
individuals and their bags at a lower overall cost of ownership than manned detectors makes this weapons detection system the best option for hospitals, casinos, higher
education, corporate locations, museums, and warehouses.
The patented SafePointe system integrates hardware and software to quickly detect concealed weapons. It features two discreet metal bollards positioned 8-10 feet apart to
create a “lane,” equipped with an advanced 3D camera and an NVIDIA®️-powered edge processor running a state-of-the art AI model. Most customers install multiple lanes
throughout their facilities to ensure protection across all entrances.
SafePointe enhances the security by providing the following capabilities:
• Identify the individual carrying a weapon when they are walking through the bollards at the same time as others.
• Deliver an alert to security officers that includes still and video images of the person to search.
• Comprehensive system overview with advanced search filters to easily find historical incidents, create ad hoc reports, and aid investigations
• Detailed alert review summary and performance metrics (e.g. visitor count, detections, and etc.) available at your fingertips.
Our Markets
We believe there is significant demand for advanced gunfire detection and location notification. These solutions that accurately and quickly report instances of gunfire are
based on three primary use cases:
• Law enforcement— for domestic and international law enforcement serving communities plagued by persistent and localized gun violence, in order to identify, locate
and deter gun violence; and
• Security— for security personnel (which may include law enforcement personnel) serving universities, corporate campuses, key infrastructure, transportation centers and
other areas in which authorities desire to prepare
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for and mitigate risks related to an active-shooter event, and desire to provide a zone of detection coverage surrounding the respective campus or secured area.
• Corporate/Other— for security personnel (which may include law enforcement personnel) serving large enterprise businesses, hospitals, casinos, hotels, and other areas
in which authorities desire to know if and when weapons are being brought onto their property.
Based on data from the Federal Bureau of Investigation's (the “FBI”) 2018 Uniform Crime Report, we estimate that the domestic market for our public safety solution
consists of the approximately 1,400 cities that had four or more homicides per 100,000 residents in 2016. The Uniform Crime Report includes information reported directly to
the FBI by 18,000 city, university and college, county, state, tribal and federal law enforcement agencies. We believe that four or more homicides per 100,000 residents
represents a significant gun violence problem. We estimate that a customer in this market could invest an average of approximately $400,000 per year for ShotSpotter. In 2021,
we also started focusing on smaller cities that may not be included in the 1,400 cities list and expect this could add another several hundred potential customers. We believe
these smaller cities could invest an average of approximately $50,000 to $100,000 per year for ShotSpotter.
Based on data made available by the National Center for Education Statistics and the Federal Aviation Administration, we believe that the domestic market for our security
solutions includes thousands of college and university campuses. We estimate that, on average, a customer in this market could invest approximately $50,000-$75,000 per year
for one of our security solutions. In addition, we believe that there exists a broader market for our security solutions that include, primarily the outdoor areas of college
campuses outside of the United States as well as large corporate campuses and other highly-trafficked areas worldwide. Investments by customers in this market for our security
solutions continue to be evaluated but could be similar to those made by our city customers.
Outside of the United States, we estimate that the market for ShotSpotter includes approximately 200 cities in Central America, the Caribbean, South America and
southern Africa that have at least 500,000 residents. We estimate that a customer in this market could invest an average of approximately $0.6 million per year for our public
safety solution. We estimate the average investment amounts for prospective customers based on our experience with existing customers, our anticipated demand for our
solutions and the corresponding coverage areas that we expect prospective customers would elect to cover with our solutions.
We believe there is demand for ResourceRouter both within our existing ShotSpotter customer base and within a broader set of police departments that are not ShotSpotter
customers today. We estimate that the market for our ResourceRouter solution includes up to 1,500 cities, based on cities that have a population above 25,000 people. We
expect that, on average, a customer could invest approximately $50,000-$100,000 per year for our ResourceRouter solution. We expect that ResourceRouter may also be
needed by potential international customers as well, who could invest over $100,000 per year for the solution.
We believe there is demand for a robust tool that would empower law enforcement agencies to solve more crime and close more cases. Every law enforcement agency has
the duty and mandate to document and investigate alleged crimes in order to hold perpetrators accountable and provide resolution for victims. Unfortunately, the options to do
this in a digitized and automated way are generally lacking. We believe CaseBuilder offers the most complete investigative case management solution on the market that has
been proven to be effective with one of the leading law enforcement agencies in the country. We estimate the market for our solution consists of over nearly 3,000 local, state
and federal agencies in the United States and potentially thousands internationally. We expect that, on average, United States customers could invest approximately $100,000
per year for our CaseBuilder solution and some customers could invest over $1 million per year.
Our Growth Strategy
We intend to drive growth in our business by expanding our domestic and international footprint for ShotSpotter and putting greater emphasis on driving adoption of the
rest of our SafetySmart platform which is gaining traction in current and new markets for the company. We plan to leverage our large and growing installed base of customers
with high net promoter attributes that consider SoundThinking a trusted partner. Key elements of our strategy include:
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• Entry Into Large and Fast-Growing Advanced License Plate Recognition (ALPR) Market. In July 2024 the Company announced a strategic partnership to create and
launch a new end-to-end vehicle and ALPR public safety solution, “PlateRanger™ Powered by Rekor®.” This collaboration brings together two industry leaders, combining
SoundThinking's expertise in acoustic gunshot detection and investigative solutions with Rekor's vehicle ALPR solutions. PlateRanger became part of the SafetySmart platform
starting in late 2024. The Company’s marketing and sales apparatus have focused both current resources and new ones to build pipeline and sell in 2025. Our initial entry into
the market indicates strong overall demand for ALPR where customers have decided to buy and have sufficient capital and are seeking to determine which vendor best serves
them. We have also seen palpable customer dissatisfaction with competitive products and we believe our solution combined with a strong customer service orientation can offer
a new attractive option.
• Reorganized Our Sales Team to Focus on Selling the Entire SafetySmart Platform. We have seen important signs of cross-sell potential with our products and recently
realigned our sales team so that all regional sales directors and account executives are educated and incentivized to sell all of the components of the platform. We believe this
will lead to more bundled sales SoundThinking products.
• Accelerate Our Acquisition of Public Safety Customers. We believe that we continue to be in the early stages of penetrating the markets for our public safety solutions.
We serve law enforcement agencies in three of the ten largest U.S. cities as ShotSpotter customers. Over the last few years we expanded our direct sales force and customer
success teams and added marketing lead-generation capabilities to accelerate growth in this market. Moreover, as we add new public safety customers, publicity and the number
of potential references for our solutions increase, which results in our brand and our solutions becoming more well known. We intend to capitalize on this momentum to grow
sales.
• Expand ShotSpotter Revenue Within Our Existing Customer Base. As customers realize the benefits of our solutions, we believe that we have a significant opportunity
to increase the lifetime value of our customer relationships by expanding coverage within their communities through a “land and expand” strategy. For example, of our
ShotSpotter customers, approximately 39% have expanded their coverage areas from their original deployment areas by an average of almost eight square miles as of December
31, 2024. Our overall revenue retention rate was 105% for 2024, 107% for 2023 and 124% for 2022.
• Expand Our International Footprint. With only four currently deployed ShotSpotter customers outside of the United States in South Africa, the Bahamas, Brazil and
Uruguay, we believe that we have a significant opportunity to expand internationally. We estimate that the market outside the United States for our public safety solutions
includes approximately 200 cities in Central America, the Caribbean, South America and southern Africa that have at least 500,000 residents. In addition, we believe that there
is a market for our security solutions, ResourceRouter and CaseBuilder outside the United States. We intend to increase our investment in our international product, sales and
marketing efforts to penetrate new geographies over the coming years.
• Drive Additional Revenue per Customer with the Development or Acquisition of New Products and Services.We are transforming the company from a domestic
acoustic gunshot detection company to a global precision policing technology solutions company. We evaluate opportunities to develop or acquire complementary products and
services. For example, our acquisition of HunchLab in 2018, renamed ResourceRouter, provides an opportunity to increase our revenue per customer with a related and value-
added technology that helps deter crime through strategically planned patrols. Our 2020 acquisition of LEEDS, LLC ("LEEDS") provided entry into a comprehensive
investigative case management solution, with our CaseBuilder solution. Our 2022 acquisition of Forensic Logic added investigative lead generation and search and analysis
technology with our CrimeTracer solution. Our 2023 acquisition of SafePointe added their AI-based weapons detection system to our SafetySmart platform. Our 2024 strategic
partnership with Rekor brings ALPR to our product line. We offer our solutions on a software-as-a-service subscription model to our customers. Our current approach is to
leverage trusted relationships with current customers to drive initial adoption and increase revenue and lifetime value per customer.
• Maintain Passionate Focus on Customer Success. Given the specialized nature of our market, a key component of our strategy is to maintain our passionate focus on
customer success and satisfaction. We pride ourselves on our execution of customer on-boarding as well as ongoing consulting and customer support, all of which are critical to
ensure not only high customer retention rates, but new customer acquisitions. We implement our customer success
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initiative early in the sales process in order to ensure that we are aligned with the customer’s objectives and can positively impact their defined outcomes. We apply consultative
best practices and policy development at the command staff level as well as tactical training for field patrol officers. We also consistently measure our performance with
customers through an annual Net Promoter Survey. We have extremely high agency participation rates and our scores the last two years have ranked between “excellent” and
“world class” according to our Survey partner benchmarks. All of our efforts are focused on driving positive measurable outcomes on gun violence reduction and prevention,
which we know leads to positive word of mouth referrals that can attract new customers and drive an increase in sales.
• Grow Our Security Business. We have developed our ShotSpotter for Campus, (formerly ShotSpotter SecureCampus) solution for universities and other educational
institutions. We have also developed ShotSpotter for Corporate (formerly ShotSpotter SiteSecure) for customers such as corporations trying to safeguard their employees,
customers, brand and profits. As of December 31, 2024, we had 20 ShotSpotter for Campus and ShotSpotter for Corporate customers under contract. While we will still plan to
sell to educational institutions, we are shifting our primary focus to certain commercial customers. We feel SafePointe and ShotSpotter for Campus provides strong
complements to each other and will enable us to successfully offer a more comprehensive solution to our education and commercial clients alike.
• Expand Total Addressable Market ("TAM"). Our acquisition of SafePointe has allowed us to expand our TAM into the estimated $20 billion weapons detection
market. Furthermore, this acquisition broadens our customer base into healthcare, casinos/hospitality, and enterprise level corporations. Additionally, our partnership with Rekor
to offer the PlateRanger product has led to an additional TAM expansion of $3.2 billion into the ALPR market.
SoundThinking Labs
SoundThinking Labs houses our advanced technology efforts to adapt and extend our commercial technology to address significant wildlife and environmental issues. Our
current focus is on combating rhino poaching in Kruger National Park, South Africa and blast fishing that threatens coral reefs and food security in Southeast Asia. We have
been able to collect revenues from philanthropic entities to cover direct and indirect costs. Innovations have made their way back into our commercial business such as the
development of a solar-powered sensor from the Kruger deployment; that technology is similar to those now being used for our freeway deployment.
The use of guns to poach rhinos is a significant environmental concern in Africa where the horn of a single rhino can be worth hundreds of thousands of dollars. In the vast
expanse of Kruger National Park, most poaching incidents go undetected with carcasses found days or weeks after the fact. The problem is particularly acute in that due to
cumulative impact of years of poaching the rhino population is on the tipping point of becoming extinct as a species.
Fish blasting results in the destruction the coral reef habitat that may not recover for many decades if at all. Coral reefs are not only home to a myriad of marine organisms
including fish but also provide significant livelihood support and form an invaluable protective barrier offshore (protecting the land from heavy storms, tsunamis, and wave
action).
The potential decline in fish catch which is the protein source for approximately 1 billion coastal residents is a strategic food security issue. In addition, coral reefs form
the basis of coastal and marine tourism, a valuable national income sector. It is estimated that, coral reefs around the globe provide services valued between US $172 billion to
$375 billion annually. Reefs must be protected for economic sustainability and food security. Our work in the Coral Triangle also known as the Amazon Forest of the Ocean has
shown some promising results. The precise detection and alerting of incidents of fish blasting provides a real time awareness to the extent of fish blasting and helps target
enforcement interventions designed to deter and prevent fish blasting activities.
Customer Revenue Model
We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Campus, and
ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. ResourceRouter, CaseBuilder and CrimeTracer are also sold on a
subscription basis generally customized based on the number of sworn officers in a particular city. With the acquisition
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of SafePointe, we generate revenues from subscriptions of our AI-based weapons detection system based on the number of entryways, or lanes being covered, a lane being the
detection area between two sensors. As of December 31, 2024, we had ShotSpotter, ShotSpotter for Campus and ShotSpotter for Corporate coverage areas under contract of
over 1,076 square miles in the aggregate, of which 1,074 miles have gone live. Coverage areas under contract for ShotSpotter included over 177 cities and coverage areas under
contract for ShotSpotter for Campus and ShotSpotter for Corporate included 20 campuses/sites across the United States, South Africa, Uruguay, Brazil and the Bahamas,
including some of the largest cities in the United States. As of December 31, 2024, we had 277 SafePointe lanes under contract. For the year ended December 31, 2024, our
two largest customers, the City of New York and the City of Chicago, accounted for 23% and 10% of our revenues, respectively. For the year ended December 31, 2023, our
two largest customers, the City of New York and the City of Chicago accounted for 25% and 9% of our revenues, respectively. For the year ended December 31, 2022, our two
largest customers, the City of New York and the City of Chicago, accounted for 30% and 10% of our revenues, respectively. Delivery of CaseBuilder in the City of New York
has added additional professional services requirements and revenue.
Go-To-Market
We sell our solutions through our direct sales teams. Our sales teams focus on both new customer acquisition, customer renewal, add-on sales, and coverage expansion.
Our sales team identifies communities with the opportunity to benefit from our solutions, communicates with key stakeholders, navigates the challenges associated with our
customers’ complex funding and procurement cycles, and establishes a foundation for a successful customer relationship. In addition, our sales team works with customers to
identify and procure funds from alternate sources, including state and federal government grants. We also have two reseller organizations that focus on CrimeTracer sales efforts
and SafePointe commercial opportunities. Our security solutions sales efforts focus primarily on corporate campuses and national retailers. We intend to continue to invest in
building a global sales organization as we further penetrate the market for ShotSpotter and expand the customer base for our security solutions.
Marketing
Our marketing function has several focus areas, with demand generation being the largest investment. It is designed to drive a new and qualified pipeline for each product
in our SafetySmart platform. The program consists of a series of targeted email, digital and offline campaigns to key personas in prospective agencies, as well as influencers, to
drive interest in our suite of products. This effort is supplemented by content marketing to target search engine keywords that buyers are using to raise the ranking of relevant
digital content the company is now producing in greater quantities to educate them on our products. The awareness efforts are supported by a team of sales development
representatives who make outbound calls to further drive interest and qualify leads. Conversions from marketing leads to sales qualified opportunities continue to increase as the
team has gained more experience and tested various approaches. The demand generation efforts are tracked and measured with a robust marketing technology automation
platform.
In general, due to the high visibility of gunfire incidents, the media’s interest in covering them, and SoundThinking’s key role in alerting police for a quick response to
these events to save lives, we attract significant attention from broadcast, online and print press. Members of the media have access to a self-serve, comprehensive media kit to
easily capture video and photos that depict the service and its benefits in a compelling fashion to enhance broadcast TV segments and print/online articles. This exposure creates
awareness for ShotSpotter, both positive and potentially negative, and can lend credibility to our market leadership position. In 2021, we expanded our strategic
communications capacity in response to specious, misleading, and false assertions made by certain media outlets and other organizations about ShotSpotter.
In the areas of content and branding, we leverage our customer base to create a growing catalog of success stories, videos and articles that convey the value of our
solutions to prospective customers, often with tangible examples and aggregated data on results. We continue to expand the breadth and depth of our content library that is on
display primarily in the Resource Center and Results page of our website and make the information easier to find and share for prospective customers and influencers.
Research and Development
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We focus our research and development efforts on enhancing our advanced signal processing and classification algorithms, updating our sensor hardware technology,
reducing manufacturing costs, developing mobile, web and desktop applications, evolving our cloud-deployed back-end infrastructure and integration with “smart cities”
initiatives. ResourceRouter crime forecasting uses machine learning and has led to additional investment in data science resources. We deployed a complete overhaul of our
SafePointe solution called NextGen in September 2024. This consisted of a replacement of the legacy apps and backend to a modern set of SoundThinking-based apps in the
Amazon web services environment, a 3D camera for motion tracking, a more powerful edge processor with NVIDIA technology, a more advanced AI and Machine Learning
model as well as better tools for remote management and monitoring. As of December 31, 2024, we had 64 employees in our research and development organization. In
addition, we engage in research and development activities with manufacturing partners and outsource certain activities to engineering firms to further supplement our internal
team.
Competition
The markets for public safety and security solutions are highly fragmented and evolving. Whether installed in local communities, on critical infrastructure or on a campus,
for a gunfire and weapons detection system to be effective, the protection zone must be comprehensive. We believe our gunshot detection solutions represent the most effective
public safety and security solutions on the market.
We compete on the basis of a number of factors, including:
• product functionality, including the ability to cover broad outdoor geographic spaces;
• solution performance, including the rapid capture of multiple acoustic incidents and accuracy;
• ease of implementation, use and maintenance;
• total cost of ownership; and
• customer support and customer success initiatives.
ShotSpotter Competitors
ShotSpotter is unique because it provides scalable wide area gunshot detection over large and geographically diverse areas, provides immediate and precise data on
gunfire, helps communities define the scope of illegal gunfire, and provides cities with detailed forensic data for investigation, prosecution and analysis. While we are not aware
of any direct competitors offering wide-area solutions comparable to SoundThinking, we believe the primary competitors in the broader gunfire detection space are ZeroEyes,
Safety Dynamics, Inc., Wi-Fiber, Inc., Databouy, EAGL Technology, Alarm.com and Flock Safety.
Most of these other outdoor solutions on the market offer limited scope point protection, proximity sensors, or “counter-sniper systems.” These systems are designed
primarily for covering small areas, or for defined military or SWAT team applications, where the target is known in advance and it is possible to put a sensor directionally
toward the target. However, urban areas and critical infrastructure require a wider system of protection that can cover a large area.
We also compete with other possible uses of the limited funding available to our SoundThinking customers. Because law enforcement agencies or government entities
have limited funds, they may have to choose among resources or solutions that help them to meet their overall mission such as video management systems, and other security
solutions. Accordingly, we compete not only with our customers’ internal budget decisions, but also with other companies vying for these limited funds. We believe that in areas
with significant levels of gun activity, SoundThinking is uniquely positioned to assist customers in interrupting, detecting and preventing gun violence.
ShotSpotter for Campus, ShotSpotter for Corporate Competitors
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Our security solutions operate in a highly competitive environment. In addition to other gunfire detection companies, we may face competition from companies offering
alternative security technologies, such as video surveillance, access control, alarm and lighting systems. The direct competitors for security solutions include the Alarm.com,
ZeroEyes. Safety Dynamics Inc., EAGL, Wi-fiber, AmberBox, Inc and Flock Safety. We believe none of our security solutions competitors is able to offer the comprehensive
outdoor coverage we offer.
CrimeTracer Competitors
CrimeTracer has a few direct competitors and also competes with a few alternative approaches to develop investigative leads. Direct competitors include Lexis Nexis
Accurint Virtual Crime Center, Peregrine, ForceMetrics and Finder Software Solutions. Alternative approaches to law enforcement data sharing include federal government-
built applications like the FBI's National Data Exchange ("N-DEx") System, and the Navy’s NCIS Law Enforcement Information Exchange ("LInX"). Both of these platforms
are available to U.S. law enforcement agencies at little to no cost. An additional alternative to develop investigative leads is using the law enforcement agency's existing Record
Management System ("RMS") search function. We believe CrimeTracer is uniquely positioned due to its comprehensive and regularly enhanced features and functions, and our
large private Criminal Justice Information Standard data set which we believe to be the largest available. Further, CrimeTracer is integrated with the Thomson Reuters
CLEARTM platform for CLEAR and CrimeTracer subscribers, allowing access to billions of additional public data records in a seamless experience.
CaseBuilder Competitors
There are many competitors in the market for investigative case management. The direct competitors include companies offering a case management module as part of
their RMS such as Mark43, Tyler, and Soma Global. There are several purpose-built case management solutions such as Kaseware and CaseClosed. Also, many agencies use
manual or homegrown methods. We believe that our solutions are superior in terms of comprehensiveness of functionality, analytical and collaboration tools, workflow process
and proven effectiveness at scale. We also believe the market suffers from a lack of awareness and understanding of what is available from vendors for this type of solution and
that our brand and feature-rich application has the potential to capture a sizeable piece of the market over time.
ResourceRouter Competitors
ResourceRouter operates in an emerging market with little direct competition since the 2023 exit of the market leader, Geolitica. We acquired the primary technology and
intellectual property of Geolitica in 2023. However, competitors may include computer-aided dispatch providers and other third-party solutions providers, such as
CentralSquare Technologies, Mark 43, Genetec, Inc., and Motorola Solutions, Inc. In addition, we may face competition from companies offering alternative solutions as well
as solutions developed internally by our customers.
PlateRanger Competitors
PlateRanger is in an active growing market with multiple offerings. Primary direct competitors include Flock ALPR, Motorola with multiple branded offerings and
Genetec. We believe PlateRanger has multiple advantages compared to our competition including product performance as tested by an independent third party, product
integration with ShotSpotter, CrimeTracer and Real Time Crime Centers, breadth of functionality, price and customer service.
SafePointe Competitors
SafePointe has a few direct competitors and also competes with a few alternative approaches to weapons detection. Direct competitors include Evolv Technology, Xtract
One Technologies, and CEIA USA. Competitors with alternate approaches include ZeroEyes and Omnilert. We believe SafePointe is uniquely positioned in the AI-powered
weapons detection space due to its robust and regularly enhanced sensor platform, as well as the cost/benefit ratio we provide to our customers by deploying un-manned lanes
and leveraging the Alert Review Center ("ARC"), which provides synergies with ShotSpotter’s IRC.
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Intellectual Property
Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. To safeguard these rights, we
rely on a combination of patent, trademark, copyright and trade secret laws, and contractual protections in the United States and other jurisdictions.
As of December 31, 2024, we had 34 issued patents, 28 in the United States, two in Brazil, and one each in Israel, Mexico, the United Kingdom, France and Germany.
The issued patents expire on various dates from 2025 to 2034.
We also license software from third parties for integration into our offerings, including open source software and other software available on commercially reasonable
terms.
Human Capital
Our values encourage us to be genuine, innovative, engaged and exceptional. They are built on the foundation that our people and the way we treat one another promote
creativity, innovation and productivity, which spur the Company’s success. We are continually investing in our global workforce to further drive diversity and inclusion,
provide fair and competitive pay and benefits to support our employees’ well-being, and to foster the growth and development of all employees. As of December 31, 2024, we
employed 316 people, all but one of whom were full-time and based in the United States. Our total attrition rate in 2024 was less than 20%, we have not experienced work
stoppages, and we believe our employee relations are good. We have been designated a Great Place to Work® Company for the last six years.
Diversity, Equity and Inclusion
Our vision is to advance diversity, equity and inclusion across the company. We recognize that everyone deserves respect and equal treatment, regardless of gender, race,
ethnicity, age, disability, sexual orientation, gender identity, cultural background or religious belief. As of December 31, 2024, women represented 39% of our employees, and
underrepresented minorities, defined as those who identify as Black/African American, Hispanic/Latinx, Native American, Pacific Islander and/or two or more races,
represented 56% of our employees.
In order to create products that solve challenging problems for people all over the world, we need employees who can bring diverse perspectives and life experiences. We
are committed to bringing more women and underrepresented and underserved groups into technology careers. We employ inclusive recruitment practices to source diverse
candidates and mitigate potential bias. We have a three-pronged strategy to grow our diversity over time by (1) attracting diverse talent and ensuring fair hiring through
inclusive and strategic recruitment practices, (2) creating an inclusive workplace environment for employees, and (3) joining forces with our customers, partners and peers to
drive industry progress.
We have invested in analysis and transparency to demonstrate our commitment to equity and inclusion through fair compensation and opportunity for professional
advancement. We define pay parity as ensuring that employees in the same job and location are paid fairly regardless of their gender or ethnicity. We make efforts to ensure our
employees receive access to advanced opportunities within the company.
Board Composition and Refreshment
As stated in our Corporate Governance Guidelines, our board of directors values diversity and recognizes the importance of having unique and complementary
backgrounds and perspectives in the board room. Our board of directors endeavors to bring together diverse skills, professional experience, perspectives and cultural
backgrounds that reflect our customer base and the citizens served by our customers, and to guide us in a way that reflects the best interests of all of our stockholders. There are
currently seven members on our board of directors. As of December 31, 2024, 43% of our board members were women and 57% of our board members were from
underrepresented communities.
Compensation, Benefits and Well-being
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We strive to offer fair, competitive compensation and benefits that support our employees’ overall well-being. To ensure alignment with our short- and long-term
objectives, our compensation programs for all employees include base pay, short-term incentives, and opportunities for long-term incentives, including equity incentives offered
under our employee equity incentive plans and employee stock purchase program. Our well-being and benefit programs focus on four key pillars: physical, emotional, financial
and community health. We offer a wide array of benefits including comprehensive health and welfare insurance, paid time-off and leave, and we sponsor a 401(k) plan to
provide defined contribution retirement benefits.
Growth and Development
Career development is a primary reason new hires decide to join SoundThinking. We actively foster a learning culture where employees are empowered to drive their
career progression, supporting professional development and providing on-demand learning platforms. Our development programs play a critical role in engaging and retaining
our employees as these programs offer opportunities to continually enhance their skills for a variety of career opportunities across the Company.
Corporate Information
We were formed as ShotSpotter, Inc., a California corporation, in 2001, reincorporated as ShotSpotter, Inc., a Delaware corporation, in 2004 and reincorporated as
SoundThinking, Inc. a Delaware Corporation in 2023. We have also done business as “SST” pursuant to a registered trade name.
Our principal executive offices are located at 39300 Civic Center Drive, Fremont, California 94538 and our telephone number is (510) 794-3100. Our website address is
www.soundthinking.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K,
and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report on Form 10-K.
SoundThinking, the SoundThinking logo, ShotSpotterTM, ShotSpotter for CampusTM, ShotSpotter for CorporateTM, ResourceRouter®, CaseBuilderTM, CrimeTracerTM,
PlateRanger™ powered by Rekor®, SafePointeTM, SoundThinking Labs and other trade names, trademarks or service marks of SoundThinking appearing in this Annual Report
on Form 10-K are the property of SoundThinking, Inc. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 10-K are the
property of their respective holders.
Where You Can Find More Information
You can read our SEC filings, including this Annual Report on Form 10-K, over the internet at the SEC’s website at www.sec.gov.
We are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we are required to file reports,
proxy statements and other information with the SEC. We also maintain a website at www.soundthinking.com, at which you may access these materials, free of charge, as
reasonably practicable after they are electronically filed with, or furnished to, the SEC. We are not, however, including the information contained on our website, or information
that may be accessed through links on our website, as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
We intend to announce material information to the public through filings with the SEC, the investor relations page on our website, which is located at
ir.soundthinking.com, press releases, public conference calls, and public webcasts. The information disclosed through the foregoing channels could be deemed to be material
information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels. The
information we post through these channels is not a part of this Annual Report. Any updates to the list of disclosure channels through which we will announce information will
be posted on the investor relations page on our website.
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Item 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other
information in this report, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the
following risks is realized, our business, operating results, financial condition and prospects could be materially and adversely affected. In that event, the price of our common
stock could decline, and you could lose part or all of your investment. Moreover, the risks described below are not the only ones that we face. Additional risks not presently
known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition. You should carefully consider these risk
factors, together with all of the other information included in this Annual Report on Form 10-K as well as our other publicly available filings with the SEC.
Risks Related to Our Growth
If our business does not grow as we expect, or if we fail to manage our growth effectively, our operating results and business prospects would suffer.
Our ability to successfully grow our business depends on a number of factors including our ability to:
•accelerate our acquisition of new customers;
•further sell expansions of coverage areas to our existing customers;
•expand our international footprint;
•expand into new vertical markets, such as precision policing, and security solutions;
•increase awareness of the benefits that our solutions offer;
•maintain our competitive and technology leadership position; and
•manage our business successfully through macroeconomic pressures, such as the imposition of tariffs, inflation, rising interest rates, and past and potential future
disruptions in access to bank deposits and lending commitments due to bank failures, and any resulting impact on economic conditions, including conditions impacting
the availability of funding for our public safety solutions.
As usage of our solutions grows, we will need to continue to make investments to develop and implement new or updated solutions, technologies, security features and
cloud-based infrastructure operations. In addition, we will need to appropriately scale our internal business systems and our services organization, including the suppliers of our
detection equipment and customer support services, to serve our growing customer base. Any failure of, or delay in, these efforts could impair the performance of our solutions
and reduce customer satisfaction.
Further, our growth could increase quickly and place a strain on our managerial, operational, financial and other resources, and our future operating results depend to a
large extent on our ability to successfully manage our anticipated expansion and growth. To manage our growth successfully, we will need to continue to invest in sales and
marketing, research and development, and general and administrative functions and other areas. We are likely to recognize the costs associated with these investments earlier
than receiving some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect, which could adversely affect
our operating results.
If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new solutions or upgrades to our existing
solutions, satisfy customer requirements, maintain the quality and security of our solutions or execute on our business plan, any of which could have a material adverse effect on
our business, operating results and financial condition.
Our quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.
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Our revenues and results of operations could vary significantly from quarter to quarter as a result of various factors, many of which are outside of our control, including:
•the expansion or contraction of our customer base;
•the renewal or non-renewal of subscription agreements with, and expansion of coverage areas by, existing customers; or cross-selling of other products or services to
existing customers;
•the size, timing, terms and deployment schedules of our sales to both existing and new customers;
•the introduction of products or services that may compete with us for the limited funds available to our customers, and changes in the cost of such products or services;
•changes in our customers’ and potential customers’ budgets;
•our ability to control costs, including our operating expenses;
•our ability to hire, train and maintain our direct sales force;
•the timing of satisfying revenues recognition criteria in connection with initial deployment and renewals;
•fluctuations in our effective tax rate;
•the concentration of our revenue in a small number of large contracts with the potential for fluctuations and delays; and
•general economic factors, such as the imposition of tariffs, inflation, rising interest rates, past and potential future disruptions in access to bank deposits and lending
commitments due to bank failures, and political conditions, both domestically and internationally.
For example, with regard to the concentration of our revenue, for the year ended December 31, 2024, the City of New York and the City of Chicago as our two largest
customers accounted for 23% and 10% of the Company’s total revenues, respectively. Our contract with the City of Chicago ended in November 2024 and we renewed our two
contracts with the City of New York in the first quarter of 2025. The ending of our contract with the City of Chicago and any inability to renew or delays in renewal of our
contract with the City of New York or any of the other factors above or other factors discussed elsewhere in this report will result in fluctuations in our revenues and operating
results, meaning that quarter-to-quarter comparisons of our revenues, results of operations and cash flows may not necessarily be indicative of our future performance.
Because of the fluctuations described above, our ability to forecast revenues is limited and we may not be able to accurately predict our future revenues or results of
operations. In addition, we base our current and future expense levels on our operating plans and sales forecasts, and our operating expenses are expected to increase in the short
term. Accordingly, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could
disproportionately and adversely affect our financial results for that quarter. The variability and unpredictability of these and other factors could result in our failing to meet or
exceed financial expectations for a given period.
Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our
operating results until future periods.
Our revenues are primarily generated from subscriptions to our solutions. With the exception of a small number of legacy customers, our customers do not have the
right to take possession of our equipment or software platform. Revenues from subscriptions to our software platform are recognized ratably over the subscription period
beginning on the date that the subscription is made available to the customer, which we refer to as the “go-live” date. Our agreements with our customers typically range from
one to three years. As a result, much of the revenues that we report in each quarter are attributable to agreements entered into during previous quarters. Consequently, a decline
in sales, customer renewals or market acceptance of our solutions in any one quarter would not necessarily be fully reflected in the revenues in that quarter and would negatively
affect our revenues and profitability in future quarters. This ratable revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales
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in any period, as revenues from new customers generally are recognized over the applicable agreement term. Our subscription-based approach may result in uneven recognition
of revenues.
We recognize subscription revenues over the term of a subscription agreement. Once we enter into a ShotSpotter contract with a customer, there is a delay until we
begin recognizing revenues while we survey the coverage areas, obtain any required consents for installation, and install our sensors, which together can take up to several
months or more. We begin recognizing revenues from a ShotSpotter sale only when all of these steps are complete and the solution is live.
While most of our customers elect to renew their subscription agreements following the expiration of a term, in some cases, they may not be able to obtain the proper
approvals or funding to complete the renewal prior to such expiration. For these customers, we stop recognizing subscription revenues at the end of the current term, even
though we may continue to provide services for a period of time while the renewal process is completed. Once the renewal is complete, we then recognize subscription revenues
for the period between the expiration of the term of the agreement and the completion of the renewal process.
The variation in the timeline for deploying our solutions and completing renewals may result in fluctuations in our revenues, which could cause our results to differ
from projections. Additionally, while we generally invoice for 50% of the contract cost upon a customer’s go-live date, our cash flows may be volatile and will not match our
revenue recognition.
We have not been profitable in the past and may not achieve or maintain profitability in the future.
We had a net loss of $9.2 million for the year ended December 31, 2024 and as of December 31, 2024, we had an accumulated deficit of $104.3 million. Although we
posted net income in 2020 and 2022, we had a net loss in 2021 and 2023. We are not certain whether we will be able to maintain enough revenues from sales of our solutions to
sustain or increase our growth or maintain profitability in the future. We also expect our costs to increase in future periods, which could negatively affect our future operating
results if our revenues do not increase. In particular, we expect to continue to expend substantial financial and other resources on:
•higher costs to procure the sensors required for our solutions due to inflationary pressures;
•sales and marketing, including a significant expansion of our sales organization, both domestically and internationally;
•research and development related to our solutions, including investments in our engineering and technical teams;
•acquisition of complementary technologies or businesses, such as our acquisition of LEEDS, LLC, now known as Technologic, in November 2020, our acquisition of
Forensic Logic in January 2022 and our acquisition of SafePointe in August 2023;
•continued international expansion of our business; and
•general and administrative expenses.
These investments may not result in increased revenues or growth in our business. If we are unable to increase our revenues at a rate sufficient to offset the expected
increase in our costs, our business, operating results and financial position may be harmed, and we may not be able to maintain profitability over the long term. Rising inflation
rates have resulted in decreased demand for our products and services and have increased our operating costs. Additionally, we may encounter unforeseen operating expenses,
difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods,
our financial performance may be harmed, and we may not maintain profitability in the future.
We may require additional capital to fund our business and support our growth, and our inability to generate and obtain such capital on acceptable terms, or at all, could
harm our business, operating results, financial condition and prospects.
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We intend to continue to make substantial investments to fund our business and support our growth. In addition, we may require additional funds to respond to business
challenges, including the need to develop new features or enhance our solutions, improve our operating infrastructure or acquire or develop complementary businesses and
technologies. As a result, in addition to the revenues we generate from our business and our existing cash balances, we may need to engage in additional equity or debt
financings to provide the funds required for these and other business endeavors. If we raise additional funds through future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our
common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and
operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be
able to obtain such additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require
it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected. In
addition, our inability to generate or obtain the financial resources needed may require us to delay, scale back, or eliminate some or all of our operations, which may have a
material adverse effect on our business, operating results, financial condition and prospects.
Risks Related to Our Public Safety Business
Our success depends on maintaining and increasing our sales, which depends on factors we cannot control, including the availability of funding to our customers.
To date, substantially all of our revenues have been derived from contracts with local governments and their agencies, in particular the police departments of major
cities in the United States. To a lesser extent, we also generate revenues from federal agencies, foreign governments and higher education institutions. We believe that the
success and growth of our business will continue to depend on our ability to add new police departments and other government agencies, domestically and internationally, as
customers of our public safety solutions and new universities, corporate campuses and key infrastructure and transportation centers as customers of our security solutions. Many
of our target customers have restricted budgets, such that we are forced to compete with programs or solutions that offer an alternative use of the same funds. A number of
factors could cause current and/or potential customers to delay or refrain from purchasing our solutions, prevent expansion of, or reduce coverage areas and/or terminate use of
our solutions, including:
•decreases or changes in available funding, including as a result of policies implemented by Trump administration’s Department of Government Efficiency within the
Office of Management and Budget (“DOGE”), tax revenues, budgetary allocations, government grants and other government funding programs;
•potential delays or changes in appropriations or other funding authorization processes;
•changes in fiscal or contracting policies;
•macro- and/or local economic changes, such as the imposition of tariffs, inflation, rising interest rates, and past and potential future disruptions in access to bank deposits
and lending commitments due to bank failures, that may affect customer funding;
•changes in elected or appointed officials;
•changes in public perception of the accuracy of our solutions and the appropriate use of our solutions by law enforcement, including as a result of negative publicity; and
•changes in laws or public sentiment regarding privacy or surveillance.
For example, our contract with the City of Chicago ended in November 2024 and we were not able to renew or extend our contract. The City of Chicago was one of our
largest customers and represented 10% of our total revenues for the year ended December 31, 2024.
The past and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts
between Ukraine and Russia and in the Middle East, and other
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macroeconomic pressures in the United States and the global economy such as the imposition of tariffs, rising inflation and interest rates, supply chain constraints, labor market
shortages, energy prices and recession fears, and any associated impact on economic conditions, could also cause or exacerbate any of the foregoing. The occurrence of any of
the foregoing would impede or delay our ability to maintain or increase the amount of revenues derived from these customers, which could have a material adverse effect on our
business, operating results and financial condition.
Contracting with government entities can be complex, expensive, and time-consuming.
The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations
relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws
and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable
requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties,
disruptions or limitations in our ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.
Government entities often require highly specialized contract terms that may differ from our standard arrangements. For example, if the federal government provides
grants to certain state and local governments for our solutions, and such governments do not continue to receive these grants, then these customers have the ability to terminate
their contracts with us without penalty. Government entities often impose compliance requirements that are complicated, require preferential pricing or “most favored nation”
terms and conditions, or are otherwise time-consuming and expensive to satisfy. Compliance with these special standards or satisfaction of such requirements could complicate
our efforts to obtain business or increase the cost of doing so. Due to the nature of our business as a software-as-a-service provider, we are occasionally unable to meet certain
requirements related to the utilization of small businesses in providing our services. Even if we do meet these special standards or requirements, the increased costs associated
with providing our solutions to government customers could harm our margins. Additionally, even once we have secured a government contract, the renewal process can be
lengthy and as time-consuming as the initial sale, and we may be providing our service for months past the contract expiration date without certainty if the renewal agreement
will be signed or not. During periods of economic uncertainty resulting from the past and potential future disruptions in access to bank deposits and lending commitments due to
bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and in the Middle East, and other macroeconomic pressures in the United States and
the global economy such as the imposition of tariffs, rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and
any associated impact on economic conditions, these risks are more pronounced than usual, as government entities struggle with reduced levels of resources related to
implications of such global events.
Changes in the underlying regulatory conditions, political landscape or required procurement procedures that affect these types of customers could be introduced prior
to the completion of our sales cycle, making it more difficult or costly to finalize a contract with a new customer or expand or renew an existing customer relationship. For
example, customers may require a competitive bidding process with extended response deadlines, review or appeal periods, or customer attention may be diverted to other
government matters, postponing the consideration of the purchase of our products. Such delays could harm our ability to provide our solutions efficiently and to grow or
maintain our customer base.
If we are unable to further penetrate the public safety market, our revenues may not grow.
Our ability to increase revenues will depend in large part on our ability to sell our current and future public safety solutions. For example, our ability to have our
ShotSpotter customers renew their annual subscriptions and expand their mileage coverage or purchase and implement our other products, such as CaseBuilder and
ResourceRouter, drives our ability to increase our revenues. Most of our ShotSpotter customers begin using our solution in a limited coverage area. Our experience has been,
and we expect will continue to be, that after the initial implementation of our solutions, our new customers typically renew their annual subscriptions, and many also choose to
expand their coverage area. However, some customers may choose to not renew or reduce their coverage, including as a negative reaction to price increases. If existing
customers do not choose to renew or expand their coverage areas, or choose to reduce their coverage, our revenues will not grow as we anticipate, or may even decline. During
periods of economic uncertainty resulting from past and potential future disruptions in access to bank deposits and lending
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commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine and Russia and in the Middle East, and other macroeconomic pressures in
the United States and the global economy, such as the imposition of tariffs, rising inflation and interest rates, supply chain constraints, labor market shortages, energy prices and
recession fears, and any associated impact on economic conditions, this risk is more pronounced than usual, as our customers’ priorities may change or they may have greater
uncertainty regarding the availability of funding for our solutions as a result.
Our ability to further penetrate the market for our public safety solutions depends on several factors, including: maintaining a high level of customer satisfaction and a
strong reputation among law enforcement; increasing the awareness of our SoundThinking solutions and their benefits; the effectiveness of our marketing programs; the
availability of funding to our customers; geopolitical developments and other macroeconomic pressures as described above; our ability to expand our solutions; and the costs of
our solutions. Some potential public safety customers may be reluctant or unwilling to use our solution for a number of reasons, including concerns about additional costs or
increased prices, unwillingness to expose or lack of concern regarding the extent of gun violence in their community, uncertainty regarding the reliability and security of cloud-
based offerings or lack of awareness of the benefits of our public safety solutions. If we are unsuccessful in expanding the coverage of SoundThinking solutions by existing
public safety customers or adding new customers, our revenues and growth prospects would suffer.
Our sales cycle can be lengthy, time-consuming and costly, and our inability to successfully complete sales could harm our business.
Our sales process involves educating prospective customers and existing customers about the use, technical capabilities and benefits of our solutions. Prospective
customers, especially government agencies, often undertake a prolonged evaluation process that may last up to nine months or more and that typically involves comparing the
benefits of our solutions to alternative uses of funds. We may spend substantial time, effort and money on our sales and marketing efforts without any assurance that our efforts
will produce any sales.
In addition, in 2011 the Federal Bureau of Investigation’s (the “FBI”) Criminal Justice Information Services Division (the “CJIS”) issued the CJIS Security Policy, a set
of standards for organizations that access criminal justice information (“CJI”). CJIS developed this policy to better protect the data it delivers to federal, state and local law
enforcement agencies, from services like the National Crime Information Center, the Integrated Automated Fingerprint Identification System and the National Incident Based
Reporting System. The policy is also designed to protect CJI that comes from sources other than the FBI. As part of the process of implementing CaseBuilder for a customer, we
may have to become an approved CJIS compliant vendor. In some states CJIS compliance is required, a separate process will have to be completed in locations where
CaseBuilder will be implemented.
We are continually improving our security, compliance, and processes. Our general processes are based on the NIST-800-53 standard with some aspects also being
controlled by CJIS. In the fourth quarter of 2024, an audit of our processes under a SOC2 Type 2 audit was completed. These initiatives require fiscal and time investments.
Failure to obtain a SOC2 Type 2 audit report or to be compliant with the CJIS standard or HIPAA could adversely affect our reputation and sales, as well as the availability of
our solutions in certain markets.
Additionally, events affecting our customers’ budgets or missions may occur during the sales cycle that could negatively impact the size or timing of a purchase after we
have invested substantial time, effort and resources into a potential sale, contributing to more unpredictability in the growth of our business. If we are unable to succeed in
closing sales with new and existing customers, our business, operating results and financial condition will be harmed. During periods of economic uncertainty resulting from the
past and potential future disruptions in access to bank capital and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine
and Russia and in the Middle East, and other macroeconomic pressures in the United States and the global economy, such as the imposition of tariffs, rising inflation and
interest rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, this risk is more
pronounced than usual, as our customers’ priorities may change or they may have greater uncertainty regarding the availability of funding for our solutions as a result.
Changes in the availability of federal funding to support local law enforcement efforts could impact our business.
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Many of our customers rely to some extent on funds from the U.S. federal government in order to purchase and pay for our solutions. Any reduction in federal funding
for local law enforcement efforts could result in our customers having less access to funds required to continue, renew, expand or pay for our solutions. Social unrest, protests
against racial inequality, protests against police brutality and movements such as “Defund the Police” have increased in past years. In addition, four members of Congress
previously requested the Inspector General of the Department of Homeland Security to investigate the appropriateness of the use of federal funds to purchase our ShotSpotter
solution. Furthermore, the New York Comptroller previously issued a report with certain conclusions questioning the accuracy and value of our ShotSpotter solution, which that
we disputed in a formal reply on the basis that they were misinformed and did not give adequate weight to the New York Police Department’s views. Additionally, funds under
the American Rescue Plan Act (“ARPA”), which is a federal stimulus bill that included emergency funding for state, local, territorial and tribal governments to aid public health
and economic recovery from the COVID-19 pandemic, are nearing their limit. Changes in the availability of federal funding, such as under ARPA or due to policies
implemented by DOGE, may lead to changes in the operations of federal agencies, which may adversely impact our business and operating results. These events may directly or
indirectly affect municipal and police agency budgets, including federal funding available to current and potential customers. If federal funding is reduced or eliminated and our
customers cannot find alternative sources of funding to purchase our solutions, our business will be harmed.
Real or perceived false positive gunshot alerts or false positive security threat detection, or failure or perceived failure to generate alerts for actual gunfire or missed
weapon detection could adversely affect our customers and their operations, damage our brand and reputation and adversely affect our growth prospects and results of
operations.
A false positive alert, in which a non-gunfire incident is reported as gunfire or detection of items that do not actually represent security threats, could result in an
unnecessary rapid deployment of police officers and first responders, which may raise unnecessary fear among the occupants of a community or facility, and may be deemed a
waste of police and first responder resources. A failure to alert law enforcement or security personnel of actual gunfire or security threats (false negative) or missed weapon
detection could result in a less rapid or no response by police officers and first responders, increasing the probability of injury or loss of life. Both false positive alerts and the
failure to generate alerts of actual gunfire or security threats (false negative) or missed weapon detection may result in customer dissatisfaction, potential loss of confidence in
our solutions, and potential liabilities to customers or other third parties, any of which could harm our reputation and adversely impact our business and operating results.
Additionally, third parties may misunderstand or misrepresent what constitutes a false positive or false negative and generate negative publicity regarding our solutions. For
example, a June 2024 report by the New York City Comptroller appears to argue that any incident that does not result in a police report is a false positive. The perception of a
false positive alert or of a failure to generate an alert or missed weapon detection, even where our customers understand that our solutions were utilized correctly, could lead to
negative publicity or harm the public perception of our solutions, which could harm our reputation and adversely impact our business and operating results.
The nature of our business may result in undesirable press coverage or other negative publicity, which could adversely affect our growth prospects and results of
operations.
Our solutions are used to assist law enforcement and first responders in the event that gunfire is detected. Even when our solutions work as intended, the incidents
detected by our solutions could lead to injury, loss of life and other negative outcomes, and such events are likely to receive negative publicity. If we fail to detect an incident, or
if we detect an incident, such as a terrorist attack or active-shooter event, but the response time of law enforcement or first responders is not sufficiently quick to prevent injury,
loss of life, property damage or other adverse outcomes, we may receive negative media attention. At times, our data or information concerning our techniques and processes
may become a matter of public record due to legal or other obligations (for example, as a result of public-records requests or subpoenas to provide information or to testify in
court), and we may receive negative media attention as a result.
Our reputation and our business may be harmed by inaccurate reporting, which could have an adverse impact on new sales or renewals or expansions of coverage areas
by existing customers, which would adversely impact our financial results and future prospects. For example, in July 2021, VICE Media, LLC (“VICE”) falsely accused us of
illegal behavior, which has had a material adverse effect on our business. We initiated a defamation lawsuit against VICE that has since been dismissed.
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The role of our solutions and our personnel in criminal prosecutions or other court proceedings may result in unfavorable judicial rulings that generate negative publicity
or otherwise adversely impact new sales or renewals or expansions of coverage areas by existing customers, which would adversely impact our financial results and future
prospects. For instance, a court ruling limiting or excluding evidence related to information gathered through our systems or to the operation of our systems in a judicial
proceeding could harm public perceptions of our business and solutions.
Economic uncertainties or downturns, or political changes, could limit the availability of funds available to our existing and potential customers, which could materially
and adversely affect our business.
Economic uncertainties or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in the United States
and abroad, including past and potential future disruptions in access to bank deposits and lending commitments due to bank failures, conditions resulting from changes in gross
domestic product growth, labor market shortages, the imposition of tariffs, inflation, interest rates, financial and credit market fluctuations, political deadlock, natural
catastrophes, warfare, geopolitical tensions, such as the ongoing conflicts between Russia and Ukraine and in the Middle East, terrorist attacks, climate change and global
pandemics, could cause a decrease in funds available to our existing and potential customers and negatively affect the rate of growth of our business. Changes in the availability
of federal funding, such as under ARPA, and the leadership of federal agencies under the Trump administration, including return-to-office policy, hiring freeze, layoffs, and
other policies implemented by DOGE, may lead to changes in the operations of federal agencies, which may adversely impact our business and operating results.
These economic conditions may make it extremely difficult for our customers and us to forecast and plan future budgetary decisions or business activities accurately,
and they could cause our customers to reevaluate their decisions to purchase our solutions, which could delay and lengthen our sales cycles or result in cancellations of planned
purchases. Furthermore, during challenging economic times or as a result of political changes, our customers may tighten their budgets and face constraints in gaining timely
access to sufficient funding or other credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our
allowance for doubtful accounts, which would adversely affect our financial results.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry, or the impact of
political changes. If the economic conditions of the general economy or industries in which we operate worsen from present levels, or if past political changes result in less
funding being available to purchase our solutions, our business, operating results, financial condition and cash flows could be adversely affected.
New competitors may enter the market for our public safety solutions.
If cities and other government entities increase their efforts to reduce gun violence or our solutions gain visibility in the market, companies could decide to enter into the
public safety solutions market and thereby increase the competition we face. In addition to other gunshot detection products, vehicle and plate identification and weapons
detection, we also compete with other technologies and solutions targeting our public safety customers’ resources for law enforcement, security teams and crime prevention. Our
competitors could benefit from the disclosure of our data or information concerning our techniques and processes due to legal or other obligations (for example, as a result of
public-records requests or subpoenas to provide information or to testify in court). Because there are several possible uses for these limited budgetary resources, if we are not
able to compete successfully for these limited resources, our business may not grow as we expect, which could adversely impact our revenues and operating results.
Concerns regarding privacy and government-sponsored surveillance may deter customers from purchasing our solutions.
Governmental agencies and private citizens have become increasingly sensitive to real or perceived government or third-party surveillance and may wrongly believe
that our outdoor sensors allow customers to listen to private conversations and monitor private citizen activity. Our sensors are not designed for “live listening” and are triggered
only by loud impulsive sounds that may likely be gunfire. However, perceived privacy concerns may result in negative media coverage and efforts by private citizens to
persuade municipalities, educational institutions or other potential customers not to purchase our precision policing solutions for their communities, campuses or facilities. In
addition,
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laws may exist or be enacted to address such concerns that could impact our ability to deploy our solutions. For example, the City of Toronto, Canada decided against using
SoundThinking solutions because the Ministry of the Attorney General of Ontario indicated that it may compromise Section 8 of Canada’s Charter of Rights and Freedoms,
which relates to unreasonable search and seizure. If customers choose not to purchase our solutions due to privacy or surveillance concerns, then the market for our solutions
may develop more slowly than we expect, or it may not achieve the growth potential we expect, any of which would adversely affect our business and financial results.
Ongoing social unrest may have a material adverse effect on our business, the future magnitude or duration of which we cannot predict with accuracy.
We may be adversely affected by ongoing social unrest, protests against racial inequality, protests against police brutality and movements such as “Defund the Police”
or increases in such unrest that may occur in the future, and such unrest may be exacerbated by inaccurate information or negative publicity regarding our solutions. These
events may directly or indirectly affect police agency budgets and funding available to current and potential customers. Participants in these events may also attempt to create
the perception that our solutions are contributing to the “problem” which may adversely affect us, our business and results of operations, including our revenues, earnings and
cash flows from operations.
Strategic and Operational Risks
If we are unable to sell our solutions into new markets, or cross-sell our other solutions to our existing customers, our revenues may not grow.
Part of our growth strategy depends on our ability to increase sales of our security and public safety solutions in markets outside of the United States. and to increase
sales of our other solutions to our existing ShotSpotter customers. We are focused on expanding the sales of these solutions into new markets, but customers in these new
markets may not be receptive or sales may be delayed beyond our expectations, causing our revenue growth and growth prospects to suffer. We are also trying to increase our
cross-selling efforts targeted at our existing customers, for example by encouraging our existing ShotSpotter customers to implement our other solutions such as CaseBuilder
and ResourceRouter but there is no assurance that our existing customers will be receptive to our other solutions. During periods of economic uncertainty resulting from the
past and potential future disruptions in access to bank deposits and lending commitments due to bank failures, geopolitical developments such as the conflicts between Ukraine
and Russia and in the Middle East, and other macroeconomic pressures in the United States and the global economy such as the imposition of tariffs, rising inflation and interest
rates, supply chain constraints, labor market shortages, energy prices and recession fears, and any associated impact on economic conditions, this risk is more pronounced than
usual.
Our ability to successfully face these challenges depends on several factors, including increasing the awareness of our solutions and their benefits; the effectiveness of
our marketing programs; the costs of our solutions; our ability to attract, retain and effectively train sales and marketing personnel; and our ability to develop relationships with
communication carriers and other partners. If we are unsuccessful in developing and marketing our solutions into new markets, or growing our revenues from our existing
customers through cross-selling, new markets for our solutions might not develop or might develop more slowly than we expect, or we may not be able to expand our
relationships with our existing customers, all of which would harm our revenues and growth prospects.
The failure of our solutions to meet our customers’ expectations or of our solutions generally could, in some cases, result in injury or loss of life, and could harm our
reputation, which may have a material adverse effect on our business, operating results and financial condition.
Promoting and demonstrating the utility of our solutions as useful, reliable and important tools for law enforcement and security personnel is critical to the success of
our business. Our ability to secure customer renewals, expand existing customer coverage areas, and enter into new customer contracts is dependent on our reputation and our
ability to deliver our solutions effectively. We believe that our reputation among police departments using SoundThinking solutions is particularly important to our success. Our
ability to meet customer expectations will depend on a wide range of factors, including:
•our ability to continue to offer high-quality, innovative and accurate precision policing solutions;
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•our ability to maintain continuous gunshot detection monitoring during high outdoor-noise activity periods such as New Year’s Day, the Fourth of July and Cinco de
Mayo, and Carnival for international deployments;
•our ability to maintain high customer satisfaction, including meeting our service level agreements standards;
•the perceived value and quality of our solutions;
•differences in opinion regarding the metrics that measure the success of our solutions;
•our ability to successfully communicate the unique value proposition of our solutions;
•our ability to provide high-quality customer support;
•any misuse or perceived misuse of our solutions;
•interruptions, delays or attacks on our platform;
•litigation- or regulation-related developments; and
•damage to or degradation of our sensors or sensor network and cameras by third parties.
In some cases, if our solutions fail to detect threats such as a firearm or other potential weapon or explosive device, or if our products contain undetected errors or
defects, these failures or errors could result in injury or loss of life, which could harm our brand and reputation, subject us to litigation and potential claims against us, and have
an adverse effect on our business, operating results and financial condition. There is no guarantee that our solutions will detect and prevent all attacks, especially in light of the
rapidly changing security landscape to which it must respond, as well as unique factors that may be present in our customers’ operating environments. If our products fail to
detect security threats for any reason, including failures due to customer personnel or security processes, it may also result in significant costs, the attention of our key personnel
could be diverted, our customers may delay or withhold payment to us or elect not to renew or cause other significant customer relations problems to arise.
Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and results of operations.
We have in the past experienced, and may in the future experience, performance issues due to a variety of factors, including infrastructure changes, human or software
errors, intentional or accidental damage to our technology (including sensors and cameras), website or third-party hosting disruptions or capacity constraints due to a number of
potential causes including technical failures, natural disasters or security attacks. If our security is compromised, our platform is unavailable or our users are unable to receive
our alerts or otherwise communicate with our IRC reviewers, within a reasonable amount of time or at all, our business could be negatively affected. In some instances, we may
not be able to identify the cause or causes of these performance problems within an acceptable period of time.
In addition, our IRC department personnel operate either in a hybrid work model or out of our offices. Any interruption or delay in service from our IRC, such as from
a communications or power outage, could limit our ability to deliver our solutions. In addition, it may become increasingly difficult to maintain and improve the performance of
our solutions, especially during peak usage times as the capacity of our IRC operations reaches its limits. If there is an interruption or delay in service from our IRC operations
and a gunshot is detected but not reviewed in the allotted time, our software will flag the incident for off-line review. This may result in delayed notifications to our customers
and as a result, we could experience a decline in customer satisfaction with our solutions and our reputation and growth prospects could be harmed.
We expect to continue to make significant investments to maintain and improve the performance of our solutions. To the extent that we do not effectively address
capacity constraints, upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business,
operating results and financial condition may be adversely affected.
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We rely on wireless carriers to provide access to wireless networks through which our acoustic sensors communicate with our cloud-based backend and with which we
provide our notification services to customers, and any interruption of such access would impair our business.
We rely on wireless carriers, mainly AT&T and Verizon, to provide access to wireless networks for machine-to-machine data transmissions, which are an integral part
of our services. Our wireless carriers may suspend wireless service to expand, maintain or improve their networks. These wireless carriers perform routine maintenance and
periodic software and firmware updates that may damage our sensors or make them inoperable. Any suspension or other interruption of services would adversely affect our
ability to provide our services to our customers and may adversely affect our reputation. In addition, the terms of our agreements with these wireless carriers provide that either
party can cancel or terminate the agreement for convenience. If one of our wireless carriers were to terminate its agreement with us, we would need to source a different wireless
carrier and/or modify our equipment during the notice period in order to minimize disruption in the performance of our solutions. Price increases or termination by our wireless
carriers or changes to existing contract terms could have a material adverse effect on our business, operating results and financial condition.
Furthermore, our reliance on wireless carriers may require updates to our technology and making such updates could also result in interruptions in our service or
increase our costs of operations. We may not be able to successfully implement new technologies or adapt existing technologies to changing market demands. If we are unable
to adapt timely to changing technologies, market conditions or customer preferences, our business, operating results and financial condition could be materially and adversely
affected.
Natural disasters, infectious disease outbreaks, power outages or other events impacting us or our customers could harm our operating results and financial condition.
We recognize revenue on a subscription basis as our solutions are provided to our customers over time. If our services are disrupted due to natural disasters, infectious
disease outbreaks, power outages or other events that we cannot control, we may not be able to continue providing our solutions as expected.
When we stop providing coverage, we also stop recognizing revenues as a result of the affected subscription agreement. If we are forced to discontinue our services due
to natural disasters, power outages and other events outside of our control, our revenues may decline, which would negatively impact our results of operations and financial
condition. In addition, we may face liability for damages caused by our sensors in the event of heavy weather, hurricanes or other natural disasters. We may also incur additional
costs to repair or replace installed sensor networks damaged by heavy weather, hurricanes or other natural disasters.
Any of our facilities or operations may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, tornadoes, hurricanes, wildfires,
floods, nuclear disasters, acts of terrorism or other criminal activities, global pandemics, and power outages, which may render it difficult or impossible for us to operate our
business for some period of time or decrease productivity. For example, our primary IRC and a data center that hosts some of our customer services are located in the San
Francisco Bay Area, a region known for seismic activity. Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. In
addition, like many companies, at the beginning of the COVID-19 pandemic, we implemented a work from home policy. We expect to work in a hybrid work model for the
foreseeable future. This policy may negatively impact productivity of our employees.
Any disruptions in our operations could negatively impact our business and operating results and harm our reputation. In addition, we may not carry business insurance
or may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business,
operating results and financial condition. In addition, the facilities of significant vendors, including the manufacturer of our proprietary acoustic sensor, may be harmed or
rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or material adverse effects on our business.
The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions.
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On September 27, 2018, we entered into a senior secured revolving credit facility with Umpqua Bank (the “Umpqua Credit Agreement”) and in November 2022, we
amended the Umpqua Credit Agreement to, among other things, extend the maturity date from November 27, 2022 to October 15, 2024, increase the revolving credit
commitment from $20.0 million to $25.0 million and increase the letter of credit sub-facility from $6.0 million to $7.5 million. In February 2024, we amended the Umpqua
Credit Agreement to extend the maturity date from October 15, 2024 to October 15, 2025. As of December 31, 2024, there was $4.0 million outstanding on our line of credit.
Under the Umpqua Credit Agreement, we are subject to various negative covenants that limit, subject to certain exclusions, our ability to incur indebtedness, make
loans, invest in or secure the obligations of other parties, pay or declare dividends, make distributions with respect to our securities, redeem outstanding shares of our stock,
create subsidiaries, materially change the nature of our business, enter into related party transactions, engage in mergers and business combinations, the acquisition or transfer
of our assets outside of the ordinary course of business, grant liens or enter into collateral relationships involving company assets or reincorporate, reorganize or dissolve the
company. These covenants could adversely affect our financial health and business and future operations by, among other things:
•making it more difficult to satisfy our obligations, including under the terms of the Umpqua Credit Agreement;
•limiting our ability to refinance our debt on terms acceptable to us or at all;
•limiting our flexibility to plan for and adjust to changing business and market conditions and increasing our vulnerability;
•limiting our ability to use our available cash flow to fund future acquisitions, working capital, business activities, and other general corporate requirements; and
•limiting our ability to obtain additional financing for working capital to fund growth or for general corporate purposes, even when necessary to maintain adequate
liquidity.
We are also required to maintain certain financial covenants tied to our leverage, interest charges and profitability. Our ability to meet such covenants (those negative
covenants discussed in the preceding paragraph) or other restrictions can be affected by events beyond our control, and our failure to comply with the financial and other
covenants would be an event of default under the Umpqua Credit Agreement. If an event of default under the Umpqua Credit Agreement, has occurred and is continuing, the
outstanding borrowings thereunder could become immediately due and payable, and we would then be required to cash collateralize any letters of credit then outstanding, and
the lender could refuse to permit additional borrowings under the facility. We have in the past obtained waivers for the financial covenant tied to our profitability, the acquisition
and investment covenants related to our acquisition of SafePointe and name change covenant for failure to provide notice of our corporate name change and of the name change
of LEEDS, LLC to Technologic Solutions, LLC. We cannot assure you that we would have sufficient assets to repay those borrowings and, if we are unable to repay those
amounts, the lender could proceed against the collateral granted to them to secure such indebtedness. We have pledged substantially all of our assets as collateral, and an event
of default would likely have a material adverse effect on our business.
The competitive landscape for our security solutions is evolving.
The market for security solutions for university campuses, corporate campuses and transportation and key infrastructure centers includes a number of available options,
such as video surveillance and increased human security presence. Because there are several possible uses of funds for security needs, we may face increased challenges in
demonstrating or distinguishing the benefits of ShotSpotter for Campus and ShotSpotter for Corporate. In particular, while we have seen growing interest in our security
solutions, interest in the indoor gunshot detection offering was limited, and as a result, in June 2018, we made the strategic decision to cease indoor coverage as part of our
service offering. If we experience declining interest in any of our offerings, we may cease offering such impacted solution in the future.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance
of our solutions.
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To increase total customers and customer coverage areas and to achieve broader market acceptance of our solutions, we will need to expand our sales and marketing
organization and increase our business development resources, including the vertical and geographic distribution of our sales force and our teams of account executives focused
on new accounts and responsible for renewal and growth of existing accounts.
Our business requires that our sales personnel have particular expertise and experience in working with law enforcement agencies, other government organizations and
higher education institutions. We may not achieve revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel with
appropriate experience, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not
effective.
Our strategy includes pursuing acquisitions, and our inability to successfully integrate newly acquired technologies, assets or businesses, or our becoming subject to certain
liabilities assumed or incurred with our acquisitions, may harm our financial results. Future acquisitions of technologies, assets or businesses, which are paid for partially
or entirely through the issuance of stock or stock rights, could dilute the ownership of our existing stockholders.
We acquired Technologic in November 2020, Forensic Logic in January 2022 and SafePointe and intellectual property assets in August 2023 in order to enhance our
SafetySmart platform. We will continue to evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services,
products and other assets in the future. We also may enter into relationships with other businesses to expand our platform and applications, which could involve preferred or
exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.
We believe that part of our continued growth will be driven by acquisitions of other companies or their technologies, assets, businesses and teams. Acquisitions in the
future that we complete will give rise to risks, including:
•incurring higher than anticipated capital expenditures and operating expenses;
•failing to assimilate the operations and personnel or failing to retain the key personnel of the acquired company or business;
•failing to integrate the acquired technologies, or incurring significant expense to integrate acquired technologies, into our platform and applications;
•disrupting our ongoing business;
•diverting our management’s attention and other company resources;
•failing to maintain uniform standards, controls and policies;
•incurring significant accounting charges;
•impairing relationships with our customers and employees;
•finding that the acquired technology, asset or business does not further our business strategy, that we overpaid for the technology, asset or business or that we may be
required to write off acquired assets or investments partially or entirely;
•failing to realize the expected synergies of the transaction;
•being exposed to unforeseen liabilities and contingencies that were not identified prior to acquiring the company; and
•being unable to generate sufficient revenues and profits from acquisitions to offset the associated acquisition costs.
Fully integrating an acquired technology, asset or business into our operations may take a significant amount of time. We may not be successful in overcoming these
risks or any other problems encountered with the acquisition of and integration of Technologic, Forensic Logic and SafePointe, intellectual property assets acquired or any
future acquisitions. To the extent that we do not successfully avoid or overcome the risks or problems related to any such
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acquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financial position and capital requirements or could cause
fluctuations in our quarterly and annual results of operations. Acquisitions could include significant goodwill and intangible assets, which may result in future impairment
charges that would reduce our stated earnings. We may incur significant costs in our efforts to engage in strategic transactions and these expenditures may not result in
successful acquisitions.
Additionally, there may be liabilities that we fail to discover while conducting due diligence for acquisitions, that we inadequately assess or that are not properly
disclosed to us. In particular, to the extent that any acquired company failed to comply with or otherwise violated applicable laws or regulations, failed to fulfill contractual
obligations to counterparties or incurred material liabilities or obligations to other parties that are not identified during the diligence process, we, as the successor owner, may be
financially responsible for these violations, failures and liabilities and may suffer financial or reputational harm or otherwise be adversely affected. We also may be subject to
litigation or other claims in connection with an acquired company. Any material liabilities we incur that are associated with our acquisitions could harm our business, operating
results and financial condition.
We expect that the consideration we might pay for any future acquisitions of technologies, assets, businesses or teams could include stock, rights to purchase stock, cash
or some combination of the foregoing. If we issue stock or rights to purchase stock in connection with future acquisitions, net income per share and then-existing holders of our
common stock may experience dilution.
The nature of our business exposes us to inherent liability risks.
Our gunshot detection solutions are designed to communicate real-time alerts of gunfire incidents to police officers and first responders. Similarly, our weapons
detection solution obtained from our SafePointe acquisition is designed to identify potential threats and alert security personnel. Due to the nature of such applications, we are
potentially exposed to greater risks of liability for employee acts or omissions or system failures than may be inherent in other businesses. Although substantially all of our
customer agreements contain provisions limiting our liability to our customers, we cannot be certain that these limitations will be enforced or that the costs of any litigation
related to actual or alleged omissions or failures would not have a material adverse effect on us even if we prevail. Further, certain of our insurance policies and the laws of
some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence, or other issues, such as damages
caused due to installation of our sensors on buildings owned by third parties, and we cannot assure you that we are adequately insured against the risks that we face.
Real or perceived errors, failures, or bugs in our software could adversely affect our operating results and growth prospects.
Because our software is complex, undetected errors, failures or bugs may occur. Our software is often installed and used with different operating systems, system
management software, equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which
it is deployed. In addition, deployment of our software into computing environments may expose undetected errors, compatibility issues, failures or bugs in our software.
Despite our testing, errors, failures, or bugs may not be found in our software until it is released to our customers. Moreover, our customers could incorrectly implement or
inadvertently misuse our software, which could result in customer dissatisfaction and adversely impact the perceived utility of our products as well as our brand. Any of these
real or perceived errors, compatibility issues, failures or bugs in our software could result in negative publicity, reputational harm, loss of or delay in market acceptance of our
software, loss of competitive position or claims by customers for losses sustained by them. In any such event, we may be required, or may choose, for customer relations or
other reasons, to expend additional resources in order to correct the problem. Alleviating any of these problems could require significant expenditures of our capital and other
resources and could cause interruptions or delays in the use of our solutions, which could cause us to lose existing or potential customers and could adversely affect our
operating results and growth prospects.
If our information technology systems or data, or those of third parties with whom we work, are or were compromised, our customers may be harmed and we could
experience adverse consequences resulting from such compromise, including, but not limited to, regulatory investigations or actions; litigation or mass arbitration
demands; fines and penalties; disruptions of our business operations; reputation harm; loss of revenue or profits; loss of customers or sales; and other adverse
consequences.
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Our operations and those of the third parties with whom we work, involve the processing, collection, receipt, storage, storage processing, generation, use, transfer,
disclosure, protection, disposal of, transmission, and sharing (collectively, “processing”) of proprietary, confidential and sensitive data, including personal information,
intellectual property, trade secrets and other sensitive information such as gunfire incident data, including date, time, address and GPS coordinates, occurring in our customer’s
coverage area (collectively, “sensitive information”). Additionally, our systems process information from third parties including criminal justice information.
Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our
sensitive information and information technology systems, and those of the third parties with whom we work. Such threats are prevalent and continue to increase generally, and
are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors,
personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in
cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and
other major conflicts, we, the third parties with whom we work, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks,
that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products and services.
We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through
deep fakes, which may be increasingly more difficult to identify as fake, phishing attacks), malicious code (such as viruses and worms), malware (including as a result of
advanced persistent threat intrusions), denial-of-service attacks, credential stuffing, credential harvesting, personnel misconduct or error, and supply-chain attacks, software
bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, attacks enhanced or facilitated by AI, telecommunications failures,
earthquakes, fires, floods, and other similar threats. For example, in November 2023, we discovered that a terminated employee logged on to an employee resource, obtained
our confidential information, and began posting some of the information publicly on social media. We took steps to remove the information and prevent the former employee
from posting the information again, but we are uncertain to what extent this will reoccur and if it does, whether it will materially impact our business or operations. In particular,
ransomware attacks are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, ability to provide our products or services, loss of
data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to
make such payments due to, for example, applicable laws or regulations prohibiting such payments.
In particular, ransomware attacks are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, ability to provide our
products or services, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we
may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Remote work has increased risks to our
information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at
home, while in transit and in public locations.
It may be difficult and/or costly to detect, investigate, mitigate, contain, and remediate a security incident. Our efforts to do so may not be successful. Actions taken by
us or the third parties with whom we work to detect, investigate, mitigate, contain, and remediate a security incident could result in outages, data losses, and disruptions of our
business. Threat actors may also gain access to other networks and systems after a compromise of our networks and systems. As we increase our customer base and our brand
becomes more widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to customer data or other
sensitive information. Further, because of the nature of the services that we provide to our customers, we may be a unique target for attacks.
Future or past business transactions (such as acquisitions or integrations, including of Forensic Logic, LLC and SafePointe, LLC) expose us to additional cybersecurity
risks and vulnerabilities, as we and our systems are negatively affected by vulnerabilities and weaker security controls present in acquired or integrated entities’ systems,
products, processes and technologies. Furthermore, we may not have adequate visibility into security issues of such acquired or
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integrated entities, may discover security issues that were not found during due diligence of such entities, and it may be difficult to integrate companies and their products into
our information technology environment and security program.
We rely on third parties to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based
infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions. We also rely on third parties
to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices is limited, and these third
parties may not have adequate information security measures in place. If the third parties with whom we work experience a security incident or other interruption, we have in
the past and could in the future experience adverse consequences. If third parties with whom we work, such as vendors or developers, violate applicable laws or our security
policies, such violations may also put our systems and data at risk and could in turn have an adverse effect on our business. In addition, such a violation could expose sensitive
data including; criminal justice information, and other data we are contractually obliged to keep confidential. While we may be entitled to damages if the third parties with
whom we work fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such
award. In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or that of the
third parties with whom we work have not been compromised.
While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take
steps to detect and remediate vulnerabilities in our information systems (such as our hardware and/or software, including that of third parties with whom we work). We have not
and may not in the future, however, detect and remediate all such vulnerabilities including on a timely basis. Vulnerabilities could be exploited and result in a security incident.
Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
We employ a shared responsibility model where our customers are responsible for using, configuring and otherwise implementing security measures related to our
platform, services and products in a manner that meets applicable cybersecurity standards, complies with laws, and addresses their information security risk. As part of this
shared responsibility security model, we make certain security features available to our customers that can be implemented at our customers’ discretion, or identify security
areas or measures for which our customers are responsible. For example, we recommend that customers implement Multifactor Authentication (MFA) when using our
products. In certain cases where our customers choose not to implement, or incorrectly implement, those features or measures, misuse our services, or otherwise experience
their own vulnerabilities, policy violations, credential exposure or security incidents, even if we are not the cause of a resulting customer security issue or incident, our customer
relationships, reputation, and revenue have been and in the future may be adversely impacted.
Any of the previously identified or similar threats have in the past and may in the future cause a security incident or other interruption that could result in unauthorized,
unlawful or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of or access to our sensitive information or our information technology
systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to
provide our solutions.
We may expend significant resources or modify our business activities to try to protect against security incidents. Certain data privacy and security obligations have
required us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and
sensitive information.
Applicable data privacy and security obligations may require us, or we may voluntarily choose, to notify relevant stakeholders, including affected individuals,
customers, regulators and investors, of security incidents, or to take other actions, such as providing credit monitoring and identity theft protection services. Such disclosures and
related actions can be costly, and the disclosure or the failure to comply with such applicable requirements could lead to adverse consequences. For example, many governments
have enacted laws requiring companies to notify individuals of data security incidents or unauthorized transfers involving certain types of personal information. In addition,
some of our customers contractually require notification of any data security incident.
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If we (or a third party with whom we work) experience a security incident or are perceived to have experienced a security incident, we may experience material adverse
consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or
oversight; restrictions on processing sensitive information (including personal information); litigation (including class claims); indemnification obligations; negative publicity;
reputational harm; monetary fund diversions; diversion of management attention; interruptions in our operations (including availability of data); financial loss; and other similar
harms. Security incidents and attendant material consequences may prevent or cause customers to stop using our solutions, deter new customers from using our solutions, and
negatively impact our ability to grow and operate our business. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that
limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
While we maintain general liability insurance coverage and coverage for errors or omissions, we cannot be sure that such coverage would be adequate or sufficient to
protect us from liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that
such coverage will pay future claims.
In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means
that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position.
We rely on the cooperation of customers and third parties to permit us to install our ShotSpotter sensors and SafePointe bollards on their facilities, and failure to obtain
these rights could increase our costs or limit the effectiveness of our ShotSpotter and SafePointe solutions.
Our ShotSpotter solution requires us to deploy ShotSpotter sensors in our customer coverage areas, which typically entails the installation of approximately 15 to 25
sensors per square mile. The ShotSpotter sensors are mounted on city facilities and third-party buildings, and occasionally on city or utility-owned light poles, and installing the
sensors requires the consent of the property owners, which can be time-consuming to obtain and can delay deployment. Generally, we do not pay a site license fee in order to
install our sensors, and our contractual agreements with these facility owners provide them the right to revoke permission to use their facility with notice of generally 60 days.
Our SafePointe solution requires us to install sensors, cameras, and networking equipment on our customer’s property. SafePointe does not pay a site license fee to install our
sensors, cameras, and networking equipment and is typically paid by the customer to complete the installation. In almost all cases, the property is owned by the customer, and no
additional approvals or consents are required.
To the extent that required consents delay our ability to deploy our solutions or facility owners do not grant permission to use their facilities, revoke previously granted
permissions, or require us to pay a site license fee in order to install our sensors or bollards, our business may be harmed. If we were required to pay a site license fee in order to
install sensors or bollards, our deployment expenses would increase, which would impact our gross margins. If we cannot obtain a sufficient number of sensor or bollard
mounting locations that are appropriately dispersed in a coverage area, the effectiveness of our ShotSpotter and SafePointe solutions would be limited, and we may need to
reduce the coverage area of the solution.
If we lose our ability to share a significant agency’s dataset in our CrimeTracer platform, our ability to sell that product may be adversely affected.
Agencies typically share their private CJIS data sets with us through subscription agreements. If we lose access to their data sets because of a technical problem, such as
a ransomware attack, or other issues that arise through no fault of our own that makes that data set inaccessible, this may result in the loss of a customer to a competitor,
subscriptions not being renewed and may make it more difficult to sell CrimeTracer in that geographic region and to the federal market.
If we fail to offer high-quality customer support, our business and reputation may suffer.
We offer customer support 24 hours a day, seven days a week, as well as training on best practices, forensic expertise and expert witness services. Providing these
services requires that our personnel have specific experience,
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knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of high-quality customer support will
increase as we expand our business and pursue new customers. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for
support services or scale our services if our business grows. Increased customer demand for these services, without corresponding revenues, could increase our costs and harm
our operating results. If we do not help our customers use applications within our solutions and provide effective ongoing support, our ability to sell additional applications to,
or to retain, existing customers may suffer and our reputation with existing or potential customers may be harmed.
We rely on a limited number of suppliers and contract manufacturers, and our proprietary ShotSpotter sensors are manufactured by a single contract manufacturer.
We rely on a limited number of suppliers and contract manufacturers. In particular, we use a single manufacturer, with which we have no long-term contract and from
which we purchase on a purchase-order basis, to produce our proprietary ShotSpotter sensors. Our reliance on a sole contract manufacturer increases our risks since we do not
currently have any alternative or replacement manufacturers, and we do not maintain a high volume of inventory. In the event of an interruption in our supply from our sole
contract manufacturer, we may not be able to develop alternate or secondary sources without incurring material additional costs and substantial delays. Furthermore, these risks
could materially and adversely affect our business if one of our contract manufacturers is impacted by a natural disaster or other interruption at a particular location because
each of our contract manufacturers produces our products from a single location. Although each of our contract manufacturers has alternative manufacturing locations,
transferring manufacturing to another location may result in significant delays in the availability of our sensors. Also, many standardized components used broadly in our
sensors are manufactured in significant quantities in concentrated geographic regions, particularly in Greater China. As a result, protracted regional crises, or issues with
manufacturing facilities could lead to eventual shortages of necessary components. It could be difficult, costly and time consuming to obtain alternative sources for these
components, or to change product designs to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could
create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.
Many of the key components used to manufacture our proprietary ShotSpotter sensors also come from limited or sole sources of supply. In addition, the lead times
associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules. Developing alternate sources of supply for these components
may be time-consuming, difficult, and costly, and we or our suppliers may not be able to source these components on terms that are acceptable to us, or at all, which may
undermine our ability to fill our orders in a timely manner.
For example, for our ShotSpotter sensors, it may take a significant amount of time to identify a contract manufacturer that has the capability and resources to build the
sensors to our specifications. Identifying suitable suppliers and contract manufacturers is an extensive process that requires us to become satisfied with their quality control,
technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, the loss of any key supplier or
contract manufacturer could adversely impact our business, operating results and financial condition.
Our solutions use third-party software and services that may be difficult to replace or cause errors or failures of our solutions that could lead to a loss of customers or harm
to our reputation and our operating results.
We license third-party software and depend on services from various third parties for use in our solutions. In the future, such software or services may not be available
to us on commercially reasonable terms, or at all. Any loss of the right to use any of the software or services could result in decreased functionality of our solutions until
equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated, which could harm our business. In addition, any
errors or defects in or failures of the third-party software or services could result in errors or defects in our solutions or cause our solutions to fail, which could harm our
business and be costly to correct. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have
additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.
We will need to maintain our relationships with third-party software and service providers, and obtain from such providers software and services that do not contain any
errors or defects. Any failure to do so could adversely impact our ability to deliver effective products to our customers and could harm our operating results.
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We use artificial intelligence in our products and services which may result in operational challenges, legal liability, reputational concerns and competitive risks.
We currently use and intend to leverage generative AI processes and algorithms and our own evolving cognitive and analytical applications into our daily operations,
including by deploying generative AI into our products and services, which may result in adverse effects to our financial condition, results or reputation. Generative AI
products and services leverage existing and widely available technologies, such as Chat GPT-4 and its successors, or alternative large language models or other processes. The
use of generative AI processes at scale is relatively new, and may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if
our use of these technologies in our products and services becomes more important to our operations over time.
Use of generative AI in our products and services may be difficult to deploy successfully due to operational issues inherent to the nature of such technologies, and our
customers may not adopt or integrate our new services as intended. For example, AI algorithms use machine learning and predictive analytics which may lead to flawed,
biased, and inaccurate results, which could lead to customer rejection or skepticism of such products. Emerging ethical issues surround the use of AI, and if our deployment or
use of AI becomes controversial, we may be subject to reputational risk. Further, unauthorized use or misuse of AI by our employees or others may result in disclosure of
confidential company and customer data, reputational harm, privacy law violations and legal liability. Our use of AI may also lead to novel and urgent cybersecurity risks,
including the misuse of personal information, which may adversely affect our operations and reputation.
As a result, we may not be able to successfully integrate AI into our products, services and operations despite expending significant time and monetary resources to
attempt to do so. Our investments in deploying such technologies may be substantial and may be more expensive than anticipated. If we fail to deploy AI as intended, our
competitors may incorporate AI technology into their products or services more successfully than we do, which may impair our ability to effectively compete in the market.
Uncertainty in the legal regulatory regime relating to AI may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S.
laws, the nature of which cannot be determined at this time. Several jurisdictions around the globe, including Europe and certain U.S. states, have already proposed or enacted
laws governing AI. For example, European regulators have proposed a stringent AI regulation, and we expect other jurisdictions will adopt similar laws. Other jurisdictions
may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. Additionally, the disclosure and use of personal information
in generative AI technologies is subject to various data privacy and security laws and other obligations. Our use of this technology could result in additional compliance costs,
regulatory investigations and actions, and consumer lawsuits. Also, we use AI/ML to assist us in making certain decisions, which is regulated by certain privacy laws. Due to
inaccuracies or flaws in the inputs, outputs, or logic of the AI/ML, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes
of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits.
If we do not or cannot maintain the compatibility of our platform with applications that our customers use, our business could suffer.
Some of our customers choose to integrate our solutions with certain other systems used by our customers, such as real-time Technologic, Forensic Logic or SafePointe
platforms or computer-aided dispatch systems. The functionality and popularity of our solutions depend, in part, on our ability to integrate our solutions into these systems.
Providers of these systems may change the features of their technologies, restrict our access to their applications or alter the terms governing use of their applications in an
adverse manner. Such changes could functionally limit or terminate our ability to use these technologies in conjunction with our solutions, which could negatively impact our
customer service and harm our business. If we fail to integrate our solutions with applications that our customers use, we may not be able to offer the functionality that our
customers need, and our customers may not renew their agreements, which would negatively impact our ability to generate revenues and adversely impact our business.
We are in the process of expanding our international operations, which exposes us to significant risks.
We currently operate in limited number of locations outside the United States. A key component to our business strategy is to expand our international operations to
increase our revenues from customers outside of the United States
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as part of our growth strategy. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and
political risks in addition to those we already face in the United States. In addition, we will need to invest time and resources in understanding the regulatory framework and
political environments of our potential customers overseas in order to focus our sales efforts. Because such regulatory and political considerations are likely to vary across
jurisdictions, this effort will require additional time and attention from our sales team and could lead to a sales cycle that is longer than our typical process for sales in the United
States. We also may need to hire additional employees and otherwise invest in our international operations in order to reach new customers. Because of our limited experience
with international operations as well as developing and managing sales in international markets, our international expansion efforts may be delayed or may not be successful.
In addition, we face and will continue to face risks in doing business internationally that could adversely affect our business, including:
•the potential impact of currency exchange fluctuations;
•the need to comply with local data residency requirements;
•the availability and reliability of local data centers and internet bandwidth providers;
•the difficulty of staffing and managing international operations and the increased operations, travel, shipping and compliance costs associated with having customers in
numerous international locations;
•potentially greater difficulty collecting accounts receivable and longer payment cycles;
•the availability and cost of coverage by wireless carriers in international markets;
•higher or more variable costs associated with wireless carriers and other service providers;
•the need to offer customer support in various languages;
•challenges in understanding and complying with local laws, regulations and customs in foreign jurisdictions, including laws regarding privacy and government
surveillance;
•export controls and economic sanctions administered by the Department of Commerce Bureau of Industry and Security and the Treasury Department’s Office of Foreign
Assets Control;
•compliance with various anti-bribery and anti-corruption laws such as the Foreign Corrupt Practices Act and United Kingdom Bribery Act of 2010;
•tariffs and other non-tariff barriers, such as quotas and local content rules;
•more limited protection for our intellectual property in some countries;
•adverse or uncertain tax consequences as a result of international operations;
•currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars;
•restrictions on the transfer of funds;
•deterioration of political relations between the United States and other countries; and
•political or social unrest, global pandemics, or economic instability in a specific country or region in which we operate, which could have an adverse impact on our
operations in that location.
Also, we expect that due to costs related to our international expansion efforts and the increased cost of doing business internationally, we will incur higher costs to
secure sales to international customers than the comparable costs for domestic customers. As a result, our financial results may fluctuate as we expand our operations and
customer base worldwide.
Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, operating results and financial
condition.
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We are dependent on the continued services and performance of our senior management and other key personnel, the loss of any of whom could adversely affect our
business.
Our future success depends in large part on the continued contributions of our senior management and other key personnel. In particular, the leadership of key
management personnel is critical to the successful management of our company, the development of our products, and our strategic direction. We also depend on the
contributions of key technical personnel.
We do not maintain “key person” insurance for any member of our senior management team or any of our other key employees. Our senior management and key
personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. The loss of any
of our key management personnel could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business.
If we are unable to attract, integrate and retain additional qualified personnel, including top technical talent, our business could be adversely affected.
Our future success depends in part on our ability to identify, attract, integrate and retain highly skilled technical, managerial, sales and other personnel. We face intense
competition for qualified individuals from numerous other companies, including other software and technology companies, many of whom have greater financial and other
resources than we do. Some of these characteristics may be more appealing to high-quality candidates than those we have to offer. In addition, new hires often require
significant training and, in many cases, take significant time before they achieve full productivity. We may incur significant costs to attract and retain qualified personnel,
including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to our competitors or
other companies before we realize the benefit of our investment in recruiting and training them. Moreover, new employees, especially those who work remotely, may not be or
become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. If we are unable to attract,
integrate and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, on a timely basis or at all, our
business will be adversely affected.
Volatility or lack of positive performance in our stock price may also affect our ability to attract and retain our key employees. Many of our senior management
personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if
the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise
prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the market price of our common stock. If we are unable to
appropriately incentivize and retain our employees through equity compensation, or if we need to increase our compensation expenses in order to appropriately incentivize and
retain our employees, our business, operating results and financial condition would be adversely affected.
Legal and Regulatory Risks
We and the third parties with whom we work are subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations, industry standards,
policies and other obligations related to data privacy and security. Our (or the third parties with whom we work) actual or perceived failure to comply with such obligations
could lead to regulatory investigations or actions; litigation (including class claims) and mass arbitration demands; fines and penalties; disruptions of our business
operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
In the ordinary course of business, we process confidential, proprietary, and/or sensitive information, including data collected by our sensors, personal information
business data, trade secrets, and intellectual property. Accordingly, our data processing activities subject us to a variety of data privacy and security obligations, such as various
laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and
security and restrictions on audio monitoring and the processing of personal information. In the United States, federal, state, and local governments have enacted numerous data
privacy
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and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and
other similar laws (e.g., wiretapping laws).
Numerous U.S. states have enacted comprehensive privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in
privacy notices and affording residents with certain rights concerning their personal information. As applicable, such rights may include the right to access, correct or delete
certain personal information, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these
rights may impact our business and ability to provide our products and services. Certain states also impose stricter requirements for processing certain personal information,
including sensitive information, such as conducting data privacy impact assessments. These state laws allow for statutory fines for noncompliance.
For example the California Consumer Privacy Act of 2018 (“CCPA”), applies to personal information of consumers, business representatives, and employees who are
California residents, and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights. The
CCPA provides for fines and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws are being considered in several
other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future.
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, the European Union’s
General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”) (collectively, “GDPR”), Brazil’s General Data Protection Law (Lei Geral de
Proteção de Dados Pessoais, or “LGPD”) (Law No. 13,709/2018), and China’s Personal Information Protection Law (“PIPL”) impose strict requirements for processing
personal information. For example, under the GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20
million Euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue, whichever is greater; or private litigation
related to processing of personal information brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests.
Additionally, we may be required, under various data privacy and security laws and other obligations, to obtain certain consents to process personal information. For
example, some of our data processing practices may be challenged under wiretapping laws, if we obtain consumer information from third parties through various methods,
including chatbot and session replay providers, or via third-party marketing pixels. These practices may be subject to increased challenges by class action plaintiffs. Our
inability or failure to obtain consent for these practices could result in adverse consequences, including class action litigation and mass arbitration demands.
Furthermore, our business relies on the acquisition and sale of personal data, including data obtained from third-party data suppliers. Regulators are increasingly
scrutinizing the activities of third-party data suppliers and acquisition and sale of personal data from or to third parties, and laws in the United States (including the CCPA and
California’s Delete Act) and other jurisdictions, such as Europe (including through the GDPR and the ePrivacy Directive), are likewise regulating such activity. These laws pose
additional, material compliance risks to such data suppliers, and these suppliers may not be able to provide us with personal information in compliance with these laws.
For example, some data suppliers are required to register as data brokers under California and Vermont law and file reports with regulators, which exposes them to
increased scrutiny. Additionally, California’s Delete Act requires the California Privacy Protection Agency to establish by January 1, 2026 a mechanism to allow California
consumers to submit a single, verifiable request to delete all of their personal information held by all registered data brokers and their service providers. Moreover, data
suppliers have recently been subject to increased litigation under various claims of violating certain state privacy laws. These laws and challenges may make it so difficult for us
or our suppliers to provide the data that the costs associated with the data materially increase or may materially decrease the availability of data that data suppliers can provide.
Obtaining and selling personal data from third parties carries risk to us. For example, we have registered as a data broker and file reports with certain regulators, which exposes
us to increased scrutiny.
In addition, we may face compliance risks and limitations on our ability to use certain data provided by our third-party suppliers if those suppliers have not complied
with applicable privacy laws, provided appropriate notice to
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data subjects, obtained necessary consents, or established a legal basis for the transfer and processing of the data by us. These challenges may make it so difficult for us and our
suppliers to provide the data and the costs associated with the data materially increase or may materially decrease the availability of data that we or our data suppliers can
provide.
We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example,
certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers. We publish privacy policies,
marketing materials, whitepapers, and other statements, such as statements related to compliance with certain certifications or self-regulatory principles, concerning data
privacy, security, and AI. Regulators in the United States are increasingly scrutinizing these statements, and if these policies, materials or statements are found to be deficient,
lacking in transparency, deceptive, unfair, misleading, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other
adverse consequences.
Obligations related to data privacy and security (and consumers’ data privacy and security expectations) are quickly changing, becoming increasingly stringent, and
creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies,
systems, and practices and to those of any third parties that process personal information on our behalf. In addition, these obligations may require us to change our business
model. We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel
or third parties with whom we work may fail to comply with such obligations, which could negatively impact our business operations.
If we or the third parties with whom we work fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could
face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation
(including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans or restrictions on processing personal information; orders
to destroy or not use personal information; and imprisonment of company officials. In particular, plaintiffs have become increasingly more active in bringing privacy-related
claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and,
if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material
adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations; inability
to process personal information or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any
claim or inquiry; adverse publicity; or substantial changes to our business model or operations.
We may be subject to additional obligations to collect and remit certain taxes, and we may be subject to tax liability for past activities, which could harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to
varying interpretations that may change over time, particularly with respect to software-as-a-service products like our solutions. Further, these jurisdictions’ rules regarding tax
nexus are complex and vary significantly. If one or more jurisdictions were to assert that we have failed to collect taxes for sales of our solutions, we could face the possibility of
tax assessments and audits. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not
historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales or otherwise harm our business and operating
results.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2024, we had federal net operating loss carryforwards (“NOLs”) of approximately $50.0 million, of which $45.1 million will begin to expire in
2030, if not utilized. The remaining net operating losses of $4.9 million can be carried forward indefinitely under the Tax Cuts and Jobs Act. As of December 31, 2024, we also
had state NOLs of approximately $41.5 million, which begin expiring in 2025. These federal and state NOLs may be available to reduce future income subject to income taxes.
In general, under Section 382 of the Internal Revenue Code
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of 1986, as amended (the "Code"), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income.
Past or future changes in our stock ownership, some of which are outside of our control, may have resulted or could result in an ownership change. State NOLs generated in one
state cannot be used to offset income generated in another state. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise
limited, such as the 2020 temporary suspension of the ability to use California NOLs and limitation on the use of certain tax credits to offset California income and tax
liabilities, which could accelerate or permanently increase state taxes owed.
We may be subject to litigation for a variety of claims or to other legal requests, which could adversely affect our results of operations, harm our reputation or otherwise
negatively impact our business.
We may be subject to litigation for a variety of claims arising from our normal business activities. These may include claims, suits, and proceedings involving labor and
employment, wage and hour, commercial and other matters. The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the
disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention and resources, and lead to attempts on the part of other
parties to pursue similar claims. Any adverse determination related to litigation could adversely affect our results of operations, harm our reputation or otherwise negatively
impact our business. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could materially affect our future operating results, our
cash flows or both.
An unfavorable outcome on any litigation matters could require us to pay substantial damages, or, in connection with any intellectual property infringement claims,
could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the
matters referenced above or other litigation matters could have a material adverse effect on our business, operating results, financial condition and cash flows.
We, or our customers, may be subject to requests for our data or information concerning our techniques and processes, pursuant to state or federal law (for example,
public-records requests or subpoenas to provide information or to testify in court). This data and information, some of which we may deem to be confidential or trade secrets,
could therefore become a matter of public record and also become accessible by competitors, which could negatively impact our business.
Changes in financial accounting standards may cause adverse and unexpected revenue fluctuations and impact our reported results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, the Securities
and Exchange Commission and various bodies formed to promulgate and interpret appropriate accounting principles. In addition, many companies’ accounting disclosures are
being subjected to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could impact our
financial statements.
Changes to accounting principles or our accounting policies on our financial statements going forward are difficult to predict, could have a significant effect on our
reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, were we to change our critical accounting
estimates, including the timing of recognition of subscription and professional services revenues and other revenues sources, our results of operations could be significantly
impacted.
Failure to protect our intellectual property rights could adversely affect our business.
Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or license under patent and other intellectual property laws
of the United States, as well as our brands, so that we can prevent others profiting from them. We rely on a combination of contractual and intellectual property rights, including
non-disclosure agreements, patents, trade secrets, copyrights and trademarks, to establish and protect our intellectual property rights in our names, services, innovations,
methodologies and related technologies. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business
might be adversely affected.
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As of December 31, 2024, we had 34 issued patents directed to our technologies, 28 in the United States, two in Brazil, one each in Israel, Mexico, the United Kingdom,
France and Germany. The issued patents expire on various dates from 2025 to 2034. We have patent applications pending for examination in the United States, Europe, Mexico
and Brazil, but we cannot guarantee that these patent applications will be granted. We also license one other U.S. patent from one third party which expired in November 2023.
The patents that we own or those that we license from others (including those that may be issued in the future) may not provide us with any competitive advantages or may be
challenged by third parties.
The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating
to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain.
Any patents that are issued may subsequently be invalidated or otherwise limited, allowing other companies to develop offerings that compete with ours, which could
adversely affect our competitive business position, business prospects and financial condition. In addition, issuance of a patent does not guarantee that we have a right to
practice the patented invention. Patent applications in the United States are typically not published until 18 months after their earliest priority date or, in some cases, not at all,
and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be certain that third parties do not have blocking patents that could be
used to prevent us from marketing or practicing our software or technology.
Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our software is available. The laws of some
foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection
for software), and mechanisms for enforcement of intellectual property rights may be inadequate. Additional uncertainty may result from changes to intellectual property
legislation enacted in the United States, including the recent America Invents Act, or to the laws of other countries and from interpretations of the intellectual property laws of
the United States and other countries by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or
misappropriating our intellectual property.
We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we endeavor to enter into non-
disclosure agreements with our employees, licensees and others who may have access to this information, we cannot assure you that these agreements or other steps we have
taken will prevent unauthorized use, disclosure or reverse engineering of our technology. Moreover, third parties may independently develop technologies or products that
compete with ours, and we may be unable to prevent this competition. Third parties also may seek access to our trade secrets, proprietary know-how and other confidential
information through legal measures (for example, public-records requests or subpoenas to provide information or to testify in court) and it could be expensive to defend against
those requests. Disclosure of our trade secrets, proprietary know-how and other confidential information could negatively impact our business.
We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for
infringement of our proprietary rights or to establish the validity of our proprietary rights. We may also engage in litigation in response to public-records requests or subpoenas
that seek our intellectual property. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing.
Additionally, we may provoke third parties to assert counterclaims against us. We may not prevail in any lawsuits that we initiate or other legal proceedings in which we
participate, and the damages or other remedies awarded, if any, may not be commercially viable. Any litigation, whether or not resolved in our favor, could result in significant
expense to us and divert the efforts of our technical and management personnel, which may adversely affect our business, operating results, financial condition and cash flows.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit
our ability to use certain technologies.
Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks
and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies
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have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation
may involve patent holding companies or other adverse patent owners that have no relevant product revenues and against which our patents may therefore provide little or no
deterrence. We may have previously received, and may in the future receive, notices that claim we have misappropriated, misused, or infringed other parties’ intellectual
property rights, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement claims.
There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of our technologies or business methods. Any
intellectual property claims, with or without merit, could be very time-consuming, could be expensive to settle or litigate and could divert our management’s attention and other
resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or
copyrights. These claims could also result in our having to stop using technology found to be in violation of a third party’s rights. We might be required to seek a license for the
intellectual property, which may not be available on a timely basis, on reasonable terms or at all. We also may be required to modify our products, services, internal systems or
technologies. Even if a license were available, we could be required to pay significant royalties, which would increase our operating expenses. As a result, we may be required
to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any infringing aspect of our
business, we would be forced to limit or stop sales of our software and may be unable to compete effectively. Any of these results would adversely affect our business,
operating results, financial condition and cash flows.
Our use of generative artificial intelligence tools may pose particular risks to our proprietary software and systems and subject us to legal liability.
We use generative AI tools in our business, including to generate code and other materials incorporated with our proprietary software and systems, and expect to use
generative AI tools in the future. Generative AI tools producing content which can be indistinguishable from that generated by humans is a relatively novel development, with
benefits, risks, and liabilities still unknown. Recent decisions of the U.S. Copyright Office suggest that we would not be able to claim copyright ownership in any source code,
text, images, or other materials, which we develop through use of generative AI tools, and the availability of such protections in other countries is unclear. As a result, we could
have no remedy if third parties reused those same materials, or similar materials also generated by AI tools.
We also face risks to any confidential or proprietary information of the Company which we may include in any prompts or inputs into any generative AI tools, as the
providers of the generative AI tools may use these inputs or prompts to further train the tools. Not all providers offer an option to opt-out of such usage, and, even where we do
opt-out, we cannot guarantee that the opt-out will be fully effective. In addition, we have little or no insight into the third-party content and materials used to train these
generative AI tools, or the extent of the original works which remain in the outputs. As a result, we may face claims from third parties claiming infringement of their intellectual
property rights, or mandatory compliance with open source software or other license terms, with respect to software, or other materials or content we believed to be available for
use, and not subject to license terms or other third-party proprietary rights. We could also be subject to claims from the providers of the generative AI tools, if we use any of the
generated materials in a manner inconsistent with their terms of use. Any of these claims could result in legal proceedings and could require us to purchase a costly license,
comply with the requirement of open source software license terms, or limit or cease using the implicated software, or other materials or content unless and until we can re-
engineer such software, materials, or content to avoid infringement or change the use of, or remove, the implicated third-party materials, which could reduce or eliminate the
value of our technologies and services. Our use of generative AI tools may also present additional security risks because the generated source code may have been modelled
from publicly available code, or otherwise not subject to all of our standard internal controls, which may make it easier for hackers and other third parties to determine how to
breach our website and systems that rely on the code. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a material adverse effect on
our business, results of operations, financial condition, and future prospects.
Our use of open source software could subject us to possible litigation.
A portion of our technologies incorporates open source software, and we expect to continue to incorporate open source software into our platform in the future. Few of
the licenses applicable to open source software have been interpreted by courts, and their application to the open source software integrated into our proprietary technology
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platform may be uncertain. If we fail to comply with these licenses, then pursuant to the terms of these licenses, we may be subject to certain requirements, including
requirements that we make available the source code for our software that incorporates the open source software. We cannot assure you that we have not incorporated open
source software in our software in a manner that is inconsistent with the terms of the applicable licenses or our current policies and procedures. If an author or other third party
that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could incur significant legal expenses
defending against such allegations. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote
additional research and development resources to change our technology platform.
Risks Related to the Ownership of Our Common Stock
We have identified a material weakness in our internal control over financial reporting as of December 31, 2024. If we are unable to develop and maintain an
effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect
investor confidence in us and materially and adversely affect our business and operating results.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. Effective internal controls are necessary
for us to provide reliable financial reports and prevent fraud.
Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of December 31,
2024, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).
Based on management’s assessment of our internal control over financial reporting, under the criteria described in the preceding sentence, management has identified a material
weakness in internal control during the year ended December 31, 2024. See Part II, Item 9A, “Controls and Procedures” of this report. If we are unable to develop and maintain
an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect
investor confidence in us and materially and adversely affect our business and operating results.
We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any
failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If
we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material
weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our
common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness
in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to
the capital markets.
Management has been implementing and continues to implement measures to remediate the material weakness. These remediation measures may be time consuming
and costly and there is no assurance that these initiatives will ultimately have the intended effects. If we identify any new material weaknesses in the future, any such newly
identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual
or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to
applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that
the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.
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The market price of our common stock has fluctuated and may continue to fluctuate significantly in response to numerous factors, many of which are beyond our
control, including the factors listed below and other factors described in this “Risk Factors” section:
•actual or anticipated fluctuations in our operating results;
•the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our
failure to meet these estimates or the expectations of investors;
•ratings changes by any securities analysts who follow our company;
•changes in the availability of federal funding to support local law enforcement efforts, or local budgets;
•announcements by us of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
•changes in operating performance and stock market valuations of other software companies generally;
•price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
•changes in our board of directors or management;
•sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
•lawsuits threatened or filed against us;
•novel and unforeseen market forces and trading strategies, as well as short sales, hedging and other derivative transactions involving our capital stock;
•the impact of past and potential future disruptions in access to bank deposits and lending commitments due to bank failures, and other macroeconomic pressures;
•general economic conditions in the United States and abroad;
•other events or factors, including those resulting from pandemics, protests against racial inequality, protests against police brutality and movements such as “Defund the
Police,” war, incidents of terrorism or responses to these events; and
•negative publicity, including false information, regarding our solutions.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of
many software companies. Stock prices of many software companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those
companies. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of our
common stock. In the past, stockholders have instituted securities action litigation following periods of market volatility. If we were to become involved in securities litigation, it
could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, operating results, financial condition
and cash flows.
Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
Non-affiliates have the ability to sell shares of our common stock in the open market or through block trades without being subject to volume restrictions under Rule
144 of the Securities Act. In addition, in the future we may issue common stock or other securities if we need to raise additional capital. The number of new shares of our
common stock issued in connection with raising additional capital could constitute a material portion of the then outstanding
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shares of our common stock. In the event a large number of shares of common stock are sold in the public market, such share sales could reduce the trading price of our
common stock.
Stock repurchases could increase the volatility of the trading price of our common stock and diminish our cash reserves, and we cannot guarantee that our stock
repurchase program will enhance long-term stockholder value.
In November 2022, our board of directors approved a new stock repurchase program for up to $25.0 million of our common stock, of which $11.6 million was utilized
as of December 31, 2024. Although our board of directors has authorized the stock repurchase program, it does not obligate us to repurchase any specific dollar amount or
number of shares, there is no expiration date for the stock repurchase program, and the stock repurchase program may be modified, suspended or terminated at any time and for
any reason. The timing and actual number of shares repurchased under the stock repurchase program will depend on a variety of factors, including the acquisition price of the
shares, our liquidity position, general market and economic conditions, legal and regulatory requirements and other considerations. Our ability to repurchase shares may also be
limited by restrictive covenants in our existing credit agreement or in future borrowing arrangements we may enter into from time to time.
Repurchases of our shares could increase the volatility of the trading price of our stock, which could have a negative impact on the trading price of our stock. Similarly,
the future announcement of the termination or suspension of the stock repurchase program, or our decision not to utilize the full authorized repurchase amount under the stock
repurchase program, could result in a decrease in the trading price of our stock. In addition, the stock repurchase program could have the impact of diminishing our cash
reserves, which may impact our ability to finance our growth, complete acquisitions and execute our strategic plan. There can be no assurance that any share repurchases we do
elect to make will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased our shares. Although our
stock repurchase program is intended to enhance long-term stockholder value, we cannot guarantee that it will do so and short-term stock price fluctuations could reduce the
effectiveness of the stock repurchase program.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume
could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market
and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares of common stock or change their
opinion of our shares of common stock, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We incur substantial costs as a result of being a public company.
As a public company, we are incurring significant levels of legal, accounting, insurance and other expenses that we did not incur as a private company. We are subject
to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market, and other applicable
securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-
consuming or costly and increases demand on our systems and resources as compared to when we operated as a private company. The Exchange Act requires, among other
things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we
maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and
procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. Furthermore, if any issues in
complying with those requirements are identified (for example, our recent identification of a material weakness over our internal controls over financial reporting and any
additional material weaknesses or significant deficiency in the internal control over financial reporting that we or our independent registered public accounting firm may
identify in the future), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect our reputation or investor perceptions of it.
As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already
hired additional corporate employees to comply with these requirements,
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we may need to hire more corporate employees in the future or engage outside consultants, which would increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many
cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This
could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We invest
resources to comply with evolving laws, regulations and standards, and these investments may result in increased operating expenses and a diversion of management’s time and
attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may
be adversely affected.
As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results and financial
condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, including by competitors and other third parties. If any
such claims are successful, our business, operating results and financial condition could be adversely affected, and even if the claims do not result in litigation or are resolved in
our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, operating results
and financial condition.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we
will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at
the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to
realize any future gains on their investments.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to
replace or remove our current management and limit the market price of our common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our
certificate of incorporation and bylaws include provisions that:
•establish a classified board of directors so that not all members of our board of directors are elected at one time;
•permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
•provide that directors may only be removed for cause;
•require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•eliminate the ability of our stockholders to call special meetings of stockholders;
•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
•provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual
stockholder meetings.
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In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits stockholders owning 15% or more
of our outstanding voting stock from merging or otherwise combining with us for a period of three years following the date on which the stockholder became a 15% stockholder
without the consent of our board of directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management, and otherwise
discourage management takeover attempts.
Our certificate of incorporation contains exclusive forum provisions that could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the
sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our
directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our
certificate of incorporation or our bylaws or (4) any action asserting a claim governed by the internal affairs doctrine. Our certificate of incorporation further provides that any
person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision.
Our certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act. These forum selection clauses in our certificate of incorporation may limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us. While the Delaware courts have determined that such choice of forum provisions are facially valid and several state trial courts
have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the
enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such
instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our certificate of incorporation. This may require significant
additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other
jurisdictions. If a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further
significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial
condition, results of operations, and prospects.
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Item 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
Item 1C. CYBERSECURITY
Risk management and strategy
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our
critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property, confidential
information that is proprietary, strategic or competitive in nature, and data related to our SafetySmart platform (“Information Systems and Data”).
Our information security and engineering functions, led by our Vice President of Operational Engineering, help identify, assess and manage the Company’s
cybersecurity threats and risks. These teams identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and our industry’s risk
profile using various methods including, for example manual and automated tools (including firewalls and endpoint protection); subscribing to and analyzing reports and
services that identify cybersecurity threats; conducting scans of our environment; evaluating threats reported to us and coordinating with law enforcement concerning certain
threats as may be appropriate; conducting threat assessments of both internal and external threats; conducting risk, threat and vulnerability assessments to identify
vulnerabilities; working with third parties to conduct testing and tabletop exercises; and using external threat intelligence feeds.
Depending on the environment and data, we implement and maintain various technical, physical, and organizational measures, processes, standards and policies
designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: incident response and detection
policy and processes; vulnerability management processes; a secure software development lifecycle policy and change management procedures; business continuity plans;
penetration tests; encrypting certain data; using network security controls; segregating and maintaining access controls over certain data; asset management and tracking;
training our employees; and maintaining cybersecurity insurance.
Our assessment and management of material risks from cybersecurity threats are integrated into the Company’s overall risk management processes. For example,
(1) cybersecurity risk is addressed as a component of the Company’s enterprise risk management program and identified in the Company’s risk register; (2) the information
security function works with management to prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to
our business; (3) our senior management evaluates material risks from cybersecurity threats against our overall business objectives and reports to the audit committee of the
board of directors, which evaluates our overall enterprise risk.
We use third-party service providers to assist us from time to time to identify, assess, and manage material risks from cybersecurity threats, including for example:
professional service firms; threat intelligence service providers; cybersecurity consultants; penetration testing firms; darkweb monitoring services; and managed detection and
response providers.
We use third-party service providers to perform a variety of functions throughout our business, such as application providers, hosting companies, and network and
cellular communications providers. We have a vendor management program to manage cybersecurity risks associated with our use of certain of these providers. Depending
on the nature of the services provided, the sensitivity of the Information Systems and Data at issue, and the identity of the provider, our vendor management process may
involve different levels of assessment designed to help identify cybersecurity risks associated with a provider, including for example, conducting risk assessment of certain
vendors, providing our vendors with a security questionnaire or reviewing their SOC report, reviewing the vendor’s written information security program in certain
circumstances, conducting audits of our vendors as may be needed, and requiring certain technical controls of our vendors through contractual obligations.
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For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see our risk factors under Part 1. Item 1A.
Risk Factors in this Annual Report on Form 10-K, including the risks titled “If our information technology systems or data, or those of third parties with whom we work, are
or were compromised, our solutions may be perceived as not being secure, our customers may be harmed and we could experience adverse consequences resulting from such
compromise, including but not limited to regulatory investigations or actions; litigation or mass arbitration demands; fines and penalties; disruptions of our business
operations; reputation harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences.”
Governance
Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is
responsible for overseeing Company’s cybersecurity risk management processes, including oversight of mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including our Vice President of
Operational Engineering. Our Vice President of Operational Engineering has over thirty years of experience in information technology and information security management
and oversees our operational engineering component, which includes our information security function, IT, networking, cloud operations, and development operations teams.
Our Vice President of Operational Engineering is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the
Company’s overall risk management strategy, and communicating key priorities to relevant personnel. Our Chief Financial Officer is responsible for approving budgets,
helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Our cybersecurity incident response and vulnerability management processes are designed to escalate certain cybersecurity incidents to members of management
depending on the circumstances, including the Chief Executive Officer, Chief Financial Officer, and the Vice President of Operational Engineering. Those members of
management work with the Company’s incident response team to help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition,
the Company’s incident response and vulnerability management processes includes members of management reporting to the audit committee of the board of directors for
certain cybersecurity incidents.
The audit committee receives periodic reports from the Chief Financial Officer concerning the Company’s significant cybersecurity threats and risk and the processes
the Company has implemented to address them. The audit committee also has access to various reports, summaries or presentations related to cybersecurity threats, risk and
mitigation.
Item 2. PROPERTIES
Our principal facilities consist of office space for our corporate headquarters in Fremont, California. We also have offices in Washington D.C., Iselin, New Jersey and
Tucson, Arizona.
We lease our facilities and do not own any real property. We may procure additional space as we add employees and expand geographically. We believe that our
facilities are adequate to meet our needs for the immediate future and that should it be needed, suitable additional space will be available to accommodate expansion of our
operations.
Item 3. LEGAL PROCEEDINGS
On August 28, 2018, Silvon S. Simmons (the “Plaintiff”) amended a complaint against the City of Rochester, New York and various city employees, filed in the United
States District Court, Western District of New York, to add us and certain of our employees as defendants. The amended complaint alleged conspiracy to violate the Plaintiff's
civil rights, denial of the right to a fair trial, and malicious prosecution. The Plaintiff claimed that we colluded with the City of Rochester to fabricate and create gunshot alert
evidence to secure Plaintiff’s conviction. On the basis of
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the allegations, the Plaintiff petitioned for compensatory and punitive damages and other costs and expenses, including attorney’s fees. In September 2024, SoundThinking was
dismissed from the lawsuit.
We may become subject to legal proceedings, as well as demands and claims that arise in the normal course of our business, including claims of alleged infringement of
third-party patents and other intellectual property rights, breach of contract, employment law violations and other matters involving requests for information from us or our
customers under federal or state law. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources. We make a
provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These
provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events
pertaining to a particular matter.
An unfavorable outcome on any litigation matters could require payment of substantial damages, or, in connection with any intellectual property infringement claims,
could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the
matters referenced above or other litigation matters or legal proceedings could have a material adverse effect on our business, operating results, financial condition and cash
flows.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II.
Item 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information of Common Stock
Our common stock has been listed on the Nasdaq Capital Market under the symbol “SSTI” since June 7, 2017. Prior to that date, there was no public trading market for
our common stock.
On March 27, 2025, the last reported sale price of our common stock as reported on the Nasdaq Capital Market was $18.52 per share. As of March 27, 2025, we had
approximately 56 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are
beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares
may be held in trust by other entities.
Dividend Policy
We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any future earnings for the operation and
expansion of our business and, therefore, we do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of
our board of directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of
dividends present in our future debt agreements, and other factors that our board of directors may deem relevant.
Sale of Unregistered Securities and Use of Proceeds
(a)Unregistered Sales of Equity Securities
Not applicable.
(b)Issuer Purchases of Equity Securities
In November 2022, our board of directors approved a new stock repurchase program for up to $25.0 million of our common stock. The shares may be repurchased
from time to time in open market transactions, in privately negotiated transactions or by other methods in accordance with federal securities laws. The actual timing, number and
value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our
common stock, general market and economic conditions and applicable legal requirements. The stock repurchase program does not obligate us to purchase any particular
amount of common stock and may be suspended or discontinued at any time.
There were no repurchases during the three months ended December 31, 2024. During the year ended December 31, 2024, the Company repurchased 418,940 shares of
its common stock at an average price of $14.31 per share for a total of $6.0 million under its stock repurchase program.
(c)Use of Proceeds from Public Offering of Common Stock
Our initial public offering of common stock (the “IPO”) was effected through a Registration Statement on Form S-1 (File No. 333-217603), which was declared
effective on June 6, 2017. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to
Rule 424(b) and other periodic reports previously filed with the SEC.
We used $13.7 million of the net proceeds from our IPO to repay outstanding indebtedness of $13.5 million, including early termination fees of $0.2 million, during the
quarter ending September 30, 2017. On October 3, 2018,
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we used $1.7 million of our IPO proceeds to fund the acquisition of HunchLab. On November 24, 2020, we used $14.6 million of our IPO proceeds to fund the acquisition of
LEEDS.
Securities Authorized for Issuance under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plan is incorporated herein by reference to Item 12 of Part III of this Annual Report
on Form 10-K.
Item 6. [Reserved]
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and
accompanying notes included in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,”
“would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties,
assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-
looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, those discussed in the section titled “Risk
Factors” set forth in Part I, Item 1A of this Annual Report on Form 10-K and in our other SEC filings. You should not rely upon forward-looking statements as predictions of
future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement, security teams and civic
leadership. In April 2023, we changed the company name, ShotSpotter, Inc., to SoundThinking, Inc., reflecting our broader impact on public safety through a growing set of
industry-leading law enforcement tools and community-focused solutions. As part of the rebranding, we introduced our SafetySmartTM platform that includes six data-driven
tools consisting of: (i) our flagship product, ShotSpotter®, our leading outdoor gunshot detection, location and alerting system trusted by 177 cities and 20 universities and
corporations as of December 31, 2024, (ii) CrimeTracer™, a leading law enforcement search engine that enables investigators to search through more than one billion criminal
justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases, (iii) CaseBuilder™, a one-stop investigative
management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™, which directs the deployment of patrol and community anti-violence resources
in an objective way to help maximize the impact of limited resources and improve community safety, (v) PlateRanger™ powered by Rekor®, an ALPR and vehicle
identification solution that leverages AI and machine learning to enhance investigative efficiency and provide real-time data sharing for law enforcement, introduced in July
2024 through a strategic partnership with Rekor Systems, Inc. and (vi) SafePointe™, an AI-based weapons detection system. We also offer other security solutions within our
flagship product offering ShotSpotter, including ShotSpotter for Campus and ShotSpotter for Corporate that are typically smaller-scale deployments of ShotSpotter vertically
marketed to universities, corporate campuses and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving
critical minutes for first responders to arrive. SoundThinking Labs supports innovative uses of the Company's technology to help protect wildlife and the environment.
Our gunshot detection solutions consist of highly-specialized, cloud-based software integrated with proprietary, internet-enabled sensors designed to detect outdoor
gunfire. The speed and accuracy of our gunfire alerts enable law enforcement and security personnel to consistently and quickly respond to shooting events including those
unreported through 911, which can increase the chances of apprehending the shooter, providing timely aid to victims, and identifying witnesses before they scatter, as well as
aid in evidence collection and serve as an overall deterrent. When a potential gunfire incident is detected by our sensors, our system precisely locates where the incident
occurred and applies machine classification combined with human review to analyze and validate the incident. An alert containing a location on a map and critical information
about the incident is sent directly to subscribing law enforcement or security personnel through any internet-connected computer and to iPhone or Android mobile devices.
Our software sends gunfire data along with the audio of the triggering sound to our Incident Review Center (“IRC”), where our trained incident review specialists are on
duty 24 hours a day, seven days a week, 365 days a year to screen and confirm actual gunfire incidents. Our trained incident review specialists can supplement alerts with
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additional tactical information, such as the potential presence of multiple shooters or the use of high-capacity weapons. Gunshot incidents reviewed by our IRC result in alerts
typically sent within approximately 45 seconds of the receipt of the gunfire incident.
We offer our solutions on a software-as-a-service subscription model to our customers. We generate annual subscription revenues from the deployment of ShotSpotter
on a per-square-mile basis. Our security solutions, ShotSpotter for Campus, and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized
deployment plan. Our ResourceRouter solution, CaseBuilder an offering of CaseBuilder focused on gun violence, and CrimeTracer are also sold on a subscription basis
generally customized based on the number of sworn officers in a particular city. We generate annual subscription revenues from the deployment of SafePointe on a per-lane
basis, a lane being the detection area between two lanes. As of December 31, 2024, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas
under contract for over 1,076 square miles, of which over 1,074 square miles had gone live. Coverage areas under contract for ShotSpotter included 177 cities and coverage
areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 20 campuses/sites across the United States, South Africa, Brazil and the Bahamas,
including some of the largest cities in the United States. As of December 31, 2024, we had 277 SafePointe lanes under contract. Most of our revenues are attributable to
customers based in the United States.
While we intend to continue to devote resources to increase sales of our solutions, we expect that revenues from ShotSpotter will continue to comprise a majority of our
revenues for the foreseeable future. SoundThinking Labs projects are generally conducted in coordination with a sponsoring charitable organization and may or may not be
revenue-producing. When they are revenue-producing, they will generally be sold on a cost-plus basis. As such, SoundThinking Labs projects will normally produce gross
margins significantly lower than most of our other solutions. Additionally, in early 2021, we added new pricing programs for Tier 4 and 5 law enforcement agencies (those with
fewer than 100 sworn officers) that allow them to contract for our gunshot detection solutions to cover a footprint of less than three square miles, using standardized coverage
parameters, at a discounted annual subscription rate.
We acquired LEEDS, LLC (“LEEDS”) in November 2020 to expand our suite of solutions and introduce CaseBuilder. CaseBuilder is our case management solution
that helps automate investigative work and improve case clearance rates – addressing an inefficiency problem for many agencies that have had to rely on multiple disparate
systems to work cases. Using the software, investigators benefit from a single digital case folder that includes all elements related to a case. Analytical and collaboration tools
help investigators connect the dots and share information faster while reporting helps package cases for command staff and prosecutors. In May 2023, we renamed LEEDS to
Technologic Solutions, LLC (“Technologic”).
In January 2022, we acquired Forensic Logic, a leading provider of cloud-based data services to U.S. law enforcement and public safety to enable powering the
industry's most advanced search and analysis technology. We believe combining lead generation from Forensic Logic with our CaseBuilder case management solution, and
utilizing CrimeTracer, can accelerate crime solving solutions and improve clearance rates.
In August 2023, we acquired SafePointe, a provider of an AI-driven next-generation concealed weapons detection solution and added this technology to our
SafetySmart platform.
In July 2024, we announced a strategic partnership to create and launch a new end-to-end vehicle and ALPR public safety solution, “PlateRanger, Powered by Rekor.”
This collaboration combines SoundThinking's expertise in acoustic gunshot detection and investigative solutions with Rekor's vehicle ALPR solutions.
Since our founding over 28 years ago, SoundThinking has been and continues to be a purpose-led company. We are a mission-driven organization that focuses on
improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing solutions to help them better engage and strengthen the police-
community relationships in fulfilling their sworn obligation to serve and protect all. Our inspiration comes from our principal founder, Dr. Bob Showen, who believes that the
highest and best use of technology is to promote social good. We are committed to developing comprehensive, respectful, and engaged partnerships with law enforcement
agencies, elected officials and communities focused on making a positive difference in the world.
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We enter into subscription agreements that typically range from one to three years in duration. Substantially all of our sales are to governmental agencies and
universities, which often undertake a prolonged contract evaluation process that affects the size or the timing of our sales contracts and may likewise increase our customer
acquisition costs.
We rely on a limited number of suppliers and contract manufacturers to produce components of our solutions. We have no long-term contracts with these manufacturers
and purchases from them are generally on a purchase order basis. Although we use a limited number of suppliers and contract manufacturers, we believe that we could find
alternate suppliers or manufacturers if circumstances required us to do so, in part because a portion of the components required by our solutions are available off the shelf.
We generated revenues of $102.0 million, $92.7 million, and $81.0 million for the years ended December 31, 2024, 2023 and 2022, respectively, representing year-
over-year increases of 10% and 14%. For the years ended December 31, 2024, 2023 and 2022, revenues from ShotSpotter represented approximately 71%, 70% and 69% of
total revenues, respectively. Our two largest customers, the City of New York and the City of Chicago, each accounted for 23% and 10%, respectively, of our total revenues for
the year ended December 31, 2024. The City of New York and the City of Chicago each accounted for 25% and 9%, respectively, of our total revenues for the year ended
December 31, 2023. The City of New York and the City of Chicago each accounted for 30% and 10%, respectively, of our total revenues for the year ended December 31,
2022. Substantially all of our revenues for the years ended December 31, 2024, 2023 and 2022 were derived from customers within the United States (including Puerto Rico and
the U.S. Virgin Islands). Our contract with the City of Chicago ended in November 2024.
We had net loss of $9.2 million for the year ended December 31, 2024, net loss of $2.7 million for the year ended December 31, 2023, and net income of $6.4 million
for the year ended December 31, 2022. Our accumulated deficit was $104.3 million and $95.1 million as of December 31, 2024 and 2023, respectively.
During the year ended December 31, 2023, the fair value of the contingent consideration that we recorded in connection with our acquisition of Forensic Logic,
decreased to zero by $3.2 million, based upon adjustments to recorded liabilities as a result of actual revenues.
During the year ended December 31, 2024, the fair value of the contingent consideration that we recorded in connection with our acquisition of SafePointe decreased to
zero by $0.6 million. During the year ended December 31, 2023, the fair value of the contingent consideration that we recorded in connection with our acquisition of SafePointe
decreased by $2.4 million. These adjustments were prompted by revised revenue estimates for 2024 and 2025, which were incorporated into our fair value methodology.
We have focused on rapidly growing our business and believe that our future growth is dependent on many factors, including our ability to increase our customer base,
expand the coverage of our solutions among our existing customers, expand our international presence, increase sales of our security solutions and retain our customers. Our
future growth will primarily depend on the market acceptance for outdoor gunshot detection solutions. Challenges we face in this regard include our target customers not having
access to adequate funding sources, the fact that contracting with government entities can be complex, expensive and time-consuming, the fact that our typical sales cycle is
often very long and difficult to estimate accurately and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate
the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we invest in
research and development, increase awareness of our solutions, invest in new sales and marketing campaigns, often in different languages for international sales, and hire
additional sales representatives to drive sales to continue to maintain our position as a market leader. In addition, we believe that entering into strategic partnerships with other
service providers to cities and municipalities offers another potential avenue for expansion.
We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and as a result of
our acquisition of SafePointe, an AI-driven weapon detection system, and acquiring intellectual property assets. We believe that developing and acquiring products for law
enforcement in adjacent categories is a path for additional growth. We believe our large and growing installed base of police departments who trust SoundThinking’s products,
support, and way of doing business provide revenue growth opportunities. The ability to cross-sell new products provides an opportunity to grow revenues per customer and
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lifetime value. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced
appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent.
Consistent with this strategy, we expanded our suite of solutions with the acquisitions of Technologic, Forensic Logic and SafePointe.
With respect to international sales, we believe that we have the potential to expand our coverage within existing areas, and to pursue opportunities in Latin America and
other regions of the world. By adding additional sales resources in strategic locations, we believe we will be better positioned to reach these markets. However, we recognize
that we have limited international operational experience and currently operate in a limited number of regions outside of the United States. Operating successfully in
international markets will require significant resources and management attention and will subject us to additional regulatory, economic, and political risks. We may face
additional challenges that may delay contract execution related to negotiating with governments in transition, the use of third-party integrations and consultants. Moreover, we
anticipate that different political and regulatory considerations that vary across different jurisdictions could extend or make more difficult to predict the length of what is already
a lengthy sales cycle.
Key Business Metrics
December 31,
2024
2023
Revenue retention rate
105 %
107 %
Sales and marketing spend per $1.00 of new annualized contract value
$
0.63
$
0.52
Net new "go-live" square miles
(64 ) *
155
Net new "go-live" cities and universities
25
25
Annual recurring revenue (in millions)
$
95.6
$
95.4
*2024 "go-live" square miles is negative due to the fact that contract with City of Chicago was terminated in 2024.
Revenue Retention Rate
We calculate our revenue retention rate annually by dividing the (a) total revenues for such year from those customers who were customers during the corresponding
prior year by (b) the total revenues from all customers in the corresponding prior year. For the purposes of calculating our revenue retention rate, we count as customers all
entities with which we had contracts in the applicable year. Revenue retention rate for any given period does not include revenues attributable to customers first acquired during
such period. We focus on our revenue retention rate because we believe that this metric provides insight into revenues related to and retention of existing customers. If our
revenue retention rate for a year exceeds 100%, as it did in the years presented above, this indicates a low churn and means that the revenues retained during the year, including
from customer expansions, more than offset the revenues that we lost from customers that did not renew their contracts during the year.
Sales and Marketing Spend per $1.00 of New Annualized Contract Value
We calculate sales and marketing spend annually as the total sales and marketing expense during a year divided by the first 12 months of contract value for contracts
entered into during the same year. We use this metric to measure the efficiency of our sales and marketing efforts in acquiring customers, renewing customer contracts, and
expanding their coverage areas.
Net New “Go-Live” Square Miles
Net new “go-live” square miles represent the square miles covered by deployments of our gunshot detection solutions that were formally approved by customers during
the year, both from initial and expanded customer deployments, net of square miles that ceased to be “live” during the year due to customer cancellations. New square miles
include deployed square miles that may have been sold, or booked, in prior years. We focus on net new “go-live” square miles as a key business metric to measure our
operational performance and inform strategic decisions.
Net New “Go-Live” Cities
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Net new “go-live” cities represent the number of cities covered by deployments of our gunshot detection solutions that were formally approved by customers during the
year, both from initial and expanded customer deployments, net of cities that ceased to be “live” during the year due to customer cancellations. New cities include deployed
coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities as a key business metric to measure our operational performance and
market penetration.
Annual Recurring Revenue
We calculate our annual recurring revenue for a year based on the expected GAAP revenue for the year from contracts that are in effect on January 1st of such year,
assuming all such contracts that are due for renewal during the year renew as expected on or near their renewal date, and including contracts executed during the year after
January 1st, but for which GAAP revenue recognition starts January 1st of the year.
Components of Results of Operations
Revenues
We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generate annual subscription revenues from the
deployment of SafePointe on a per-lane basis, a lane being the detection area between two sensors. Our security solutions, ShotSpotter for Campus and ShotSpotter for
Corporate are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter, CaseBuilder and CrimeTracer solutions are also sold on a
subscription basis generally customized based on the number of sworn officers in a particular city.
We derive the majority of our revenues from subscription services. We recognize subscription fees ratably, on a straight-line basis, over the term of the subscription,
which for new customers is typically initially one to three years in length. Customer contracts include one-time set-up fees for the set-up of our sensors in the customer’s
coverage areas, training, and third-party integration licenses. If the set-up fees are deemed to be a material right, they are recognized ratably over three to five years depending
on the contract term. Training and third-party integration license fees are recognized upon delivery.
We also generate revenues through sales to two customers through sales channel intermediaries that include enhanced services. One sales channel intermediary contract
through Technologic includes (i) a single on-premise software license for our proprietary software technology and related maintenance and support services and (ii) professional
software development services, such as for software development and testing for product feature enhancements, by executing supplementary work orders. The second sales
channel intermediary contract includes an enterprise CaseBuilder solution with supplemental professional services to integrate CaseBuilder with the customer's existing systems
that will remain in place.
For ShotSpotter sales to cities, we generally invoice customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when
the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer
acceptance form. For SafePointe, we generally invoice the first year's subscription price when the contract is fully executed. For ShotSpotter for Campus, ShotSpotter for
Corporate and CrimeTracer, we generally invoice customers 100% of the total contract value when the subscription service is operational, which is often soon after contract
execution. All fees billed in advance of services being delivered are recorded as deferred revenue. The timing of when new miles go live can be uncertain and, as a result, can
have a significant impact on the levels of revenues and deferred revenue from quarter to quarter.
For ShotSpotter, our pricing model is based on a per-square-mile basis. For SafePointe, our pricing model is based on a per-lane basis. For ShotSpotter for Campus,
ShotSpotter for Corporate and CaseBuilder, our pricing model is on a customized-site basis. For ResourceRouter, CaseBuilder and CrimeTracer, pricing is currently customized,
generally tied to the number of sworn police officers in a particular agency. We may also offer discounts or other incentives in conjunction with all ShotSpotter sales in an effort
to introduce the product, accelerate sales or extend renewals for a longer contract term. As a result of our process for invoicing contracts and renewals upon execution, our cash
flow from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment.
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We generally invoice subscription service renewals for 100% of the total contract value when the renewal contract is executed. Renewal fees are recognized ratably over
the term of the renewal, which is typically one year. While most of our customers elect to renew their agreements, in some cases, they may not be able to obtain the proper
approvals or funding to complete the renewal prior to expiration. For these customers, we stop recognizing subscription revenues at the end of the current contract term, even
though we may continue to provide services for a period of time until the renewal process is completed. Once the renewal is complete, we then recognize subscription revenues
for the period between the expiration of the original term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a
customer declines to renew its subscription prior to the end of the contract term, remaining setup fees, if any, are immediately recognized.
Through Forensic Logic, we generate revenues from subscriptions of CrimeTracer, cloud-based data services for advanced search and analysis tools. We also provide
access to this technology platform to an intermediary to either be resold or combined with their own materials, software and/or services, to create an integrated solution that is
provided to their end-user customers. We recognize this revenue net of margins paid to the intermediary.
We also generate revenues from CaseBuilder, a first-of-its-kind digital case management solution that automates the process by which key information is input,
captured and used to identify associated gun crime cases leading to the identification of persons of interest. Subscriptions for CaseBuilder recognize revenue similar to our
ShotSpotter and CrimeTracer products.
With the acquisition of SafePointe, we generate revenues from subscriptions of our AI-based weapons detection system based on the number of entryways, or lanes,
being covered.
It is likely that international deployments may have different payment and billing terms due to their local laws, restrictions or other customary terms and conditions.
SoundThinking Labs projects may or may not be revenue-producing. When they are revenue-producing, they are generally sold on a cost-plus basis.
We anticipate that, due to rising costs of inflation, our customers may experience increased expenditures resulting in budget shortfalls and changes in their business
cycle, which may cause delays in their ability to approve proposals for contracts.
Costs
Costs include the cost of revenues and impairment of property and equipment. Cost of revenues primarily includes depreciation expense associated with capitalized
customer acoustic sensor networks, communication expenses, costs related to hosting our service applications, costs related to operating our IRC, providing remote and on-site
customer support and maintenance and forensic services, providing customer training and onboarding services, certain personnel and related costs of operations, stock-based
compensation and allocated overheads that include information technology, facility and equipment depreciation costs. Cost of revenues for our SafePointe solution are similar
except that depreciation of the capitalized customer equipment is smaller due to the lower costs of SafePointe customer equipment.
Impairment of property and equipment is primarily attributable to our write-off of the remaining book value of sensor networks related to customers lost.
In the near term, we expect our cost of revenues to increase in absolute dollars as our installed base increases, although certain of our costs of revenues are fixed and do
not need to increase commensurate with increases in revenues. In addition, depreciation expense associated with deployed equipment is recognized over the first five years from
the go live date. We also expect cost of revenues to increase in absolute dollars as we continue to invest in our customer success capabilities to drive growth and value for our
customers.
For revenues generated through the sale of a proprietary software license and related maintenance and support services and professional software development services,
cost of revenues generally includes employee compensation costs that are relatively fixed, third-party contractor costs, allocated facility costs and overhead, and the costs of
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billable expenses such as travel and lodging. The unpredictability of the timing of entering into significant professional services agreements may cause significant fluctuations in
our costs which, in turn, may impact our quarterly financial results.
The cost of revenues for CrimeTracer, ResourceRouter and CaseBuilder is generally related to employee compensation costs and data center hosting services, both of
which are relatively fixed.
Operating Expenses
Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Consultants, salaries, bonuses, stock-based
compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense
incurred in connection with the grant of stock options and restricted stock units to the applicable operating expense category based on the equity award recipient’s functional
area.
We are focused on executing on our growth strategy. As a result, in the near term we expect our total operating expenses to increase in absolute dollars as we incur
additional expenses due to growth. Although our operating expenses will fluctuate, we expect that over time, they will generally decrease as a percentage of revenues.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions earned by our sales personnel,
marketing expenses for trade shows and lead generation programs, consulting fees and travel and facility-related costs.
We expect sales and marketing expense will increase in the near-term in absolute dollars as we continue to grow our organization and may fluctuate from quarter to
quarter based on the timing of commission expense, marketing campaigns and tradeshows.
Research and Development
Research and development expenses primarily consist of personnel-related costs attributable to our research and development personnel, consulting fees and allocated
facilities and general operational overhead. We have devoted our product development efforts primarily to develop new lower-cost sensor hardware, develop new features,
improve functionality of our solutions, and adapt to new technologies or changes to existing technologies.
We are investing in engineering resources to support further development of ResourceRouter, CrimeTracer, CaseBuilder, PlateRanger and SafePointe. The focus of this
effort will be in the areas of data science modeling, user experience, core application functionality and backend infrastructure improvements, including integration of
ShotSpotter gunshot data to enhance forecasting of gun violence.
We are also investing in research and development resources in conjunction with our SoundThinking Labs projects and initiatives. The initial focus of these efforts is to
develop innovative sensor applications as well as to test and expand the functionality of our outdoor sensors in challenging environmental conditions.
In the near term, we expect our research and development expenses to increase in absolute dollars and as a percentage of revenues as we increase our research and
development headcount to further strengthen our software and invest in the development of our services.
We will continue to invest in research and development to leverage our large and growing database of acoustic events, which includes those from both gunfire and non-
gunfire. We also intend to leverage third-party artificial intelligence and our own evolving cognitive and analytical applications to improve the efficiency of our solutions.
Certain of these applications and outputs may expand the platform of services that we will be able to offer our customers.
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General and Administrative
General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, and administrative personnel, legal, litigation,
strategic communications, accounting and other professional services fees, and other corporate expenses and allocated overhead.
In the near term, we expect our general and administrative expenses to increase in both absolute dollars and as a percentage of revenues as we grow our business.
Change in Fair Value of Contingent Consideration
Change in fair value of contingent consideration primarily consists of increases or decreases in our contingent consideration liabilities recorded for potential earnouts
from our acquisitions of Forensic Logic, Technologic and SafePointe. The changes result from revenue actuals and revised revenue estimates utilized in the fair value
methodology to estimate the contingent liability for the earnouts.
Other Income (Expense), Net
Other income (expense), net, consisted primarily of interest income and local and franchise tax expenses.
Income Taxes
Our income taxes are based on the amount of our income before tax and enacted federal, state and foreign tax rates, adjusted for allowable credits and deductions, as
applicable. Historically, our income tax expense has been at the state level.
We continually monitor all positive and negative evidence regarding the realization of our deferred tax assets and may record assets when it becomes more likely than
not, that they will be realized, which may impact the expense or benefit from income taxes.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. We regularly assess the likelihood that the deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and
ongoing tax planning strategies, then record a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be
realized. Based upon our assessment of all available evidence, including the previous three years of income before tax after permanent items, estimates of future profitability,
and our overall prospects of future business, we have determined that it is more likely than not that we will not be able to realize a portion of the deferred tax assets in the
future. We will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If our actual results and
updated projections vary significantly from the projections used as a basis for this determination, we may need to change the valuation allowance against the gross deferred tax
assets.
72
Results of Operations
The following table sets forth our consolidated statements of operations data for the years ended December 31, 2024 and 2023 (in thousands):
As a % of
As a % of
Change
2024
Revenues
2023
Revenues
$
%
Revenues
$
102,031
100 % $
92,717
100 % $
9,314
10 %
Costs
Cost of revenues
43,542
43 %
39,874
43 %
3,668
9 %
Impairment of property and equipment
605
1 %
114
—
491
431 %
Total costs
44,147
44 %
39,988
43 %
4,159
10 %
Gross profit
57,884
56 %
52,729
57 %
5,155
10 %
Operating expenses:
Sales and marketing
28,138
28 %
26,959
29 %
1,179
4 %
Research and development
13,925
14 %
12,138
13 %
1,787
15 %
General and administrative
23,894
23 %
20,557
22 %
3,337
16 %
Change in fair value of contingent consideration
(554 )
-1 %
(5,686 )
-6 %
5,132
-90%
Restructuring expense
336
—
—
—
336
—
Total operating expenses
65,739
64 %
53,968
58 %
11,771
22 %
Operating income (loss)
(7,855 )
-8 %
(1,239 )
-1 %
(6,616 )
534 %
Other expense, net
(547 )
—
(275 )
—
(272 )
-99%
Provision for income taxes
778
1 %
1,204
1 %
(426 )
-35%
Net income (loss)
$
(9,180 )
-9 % $
(2,718 )
-2 % $
(6,462 )
238 %
Revenues
The increase of $9.3 million was primarily attributable to an $6.2 million increase in revenues from new customers and expansions of existing customer coverage areas,
$2.0 million increase due to 12 months of revenue in 2024 compared to four months in 2023 from acquisition of Safepointe and $2.0 million increase from new CaseBuilder
customers. ShotSpotter went live in 20 new cities and five universities during the year ended December 31, 2024. Revenue was affected by the delay of approximately $3.5
million of two contract renewals with the City of New York, which were renewed in first quarter of 2025.
Costs
The increase in costs of $4.2 million was primarily due to 12 months of expenses related to SafePointe in 2024 compared to four months in 2023, as well as personnel-
related costs as we continue to grow our business. In addition, operating expenses in 2023 included the continent consideration adjustment of $5.7 million in 2023 associated
with the Forensic Logic and SafePointe acquisitions.
Gross Profit
Gross profit as a percentage of revenues remained stable.
Operating Expenses
Sales and Marketing Expense
Sales and marketing expense increased by $1.2 million and was primarily due to 12 months of expenses related to SafePointe in 2024 compared to four months in 2023,
offset by $0.7 million reduced costs in outside commission.
Research and Development Expense
Research and development expense increased by $1.8 million primarily due to 12 months of expenses related to SafePointe in 2024 compared to four months in 2023.
73
General and Administrative Expense
General and administrative expense increased by $3.3 million and was primarily due to a $2.2 million increase in stock-based compensation, a $0.9 million increase in
bonus expense and a $1.4 million increase due to 12 months of expenses related to SafePointe in 2024 compared to four months in 2023, and offset by decrease of $1 million in
legal fees related to the 2023 acquisition of SafePointe.
Change in Fair Value of Contingent Consideration
The fair value of contingent consideration related to our acquisitions decreased by $0.6 million during the year ended December 31, 2024. This reflected a decrease in
the fair value of the SafePointe contingent consideration liability, based upon revised 2024 and 2025 revenue estimates utilized in the fair value methodology to estimate the
contingent liability for the earnouts.
Restructuring Expense
Restructuring expense related to the workforce reduction during 2024 amounted to $0.3 million, consisting of cash expenditures for severance and other employee
separation-related costs.
Other Income (Expense), Net
Other income (expense) did not increase materially compared with the prior year.
Income Taxes
Our income taxes are based on the amount of our taxable income and enacted federal, state, and foreign tax rates, adjusted for allowable credits, deductions and the
valuations allowance against deferred tax assets, as applicable. Our provision for state income taxes did not increase materially from the prior year.
Comparison of the Years Ended December 31, 2023 and 2022
For discussion of our 2023 results and a comparison with 2022 results please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that was filed with the SEC on April 1, 2024 (the "2023 Form 10-
K").
Liquidity and Capital Resources
Sources of Funds
Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal
source of liquidity is cash and cash equivalents totaling $13.2 million and account receivable of $25.5 million as of December 31, 2024. On December 31, 2024, our available
credit facility was approximately $21.0 million and we had $4.0 million outstanding on our line of credit, which was primarily used to fund our acquisition of SafePointe.
We believe our existing cash and cash equivalent balances, our available credit facility and cash flow from operations will be sufficient to meet our working capital and
capital expenditure requirements for at least the next 12 months. We believe that despite our negative working capital, the costs to perform the short-term deferred revenue is
relatively low compared to the balance of $38.4 million. However, should additional working capital be needed, we can utilize our unused credit facility. We believe that we
will meet longer term expected future working capital and capital expenditure requirements through a combination of cash flows from operating activities, available cash
balances and our available credit facility. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate
of revenues growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market
acceptance of our products, and overall economic conditions. We may also seek additional capital to fund our operations, including through the sale of equity or debt
financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect the rights of our existing common
74
stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing
covenants that would restrict our operations. Additionally, there is no guarantee that debt or equity financing will be available to us on terms that are favorable to us, or at all.
Use of Funds
Our historical uses of cash have primarily consisted of cash used for operating activities, such as expansion of our sales and marketing operations, research and
development activities and other working capital needs, and cash used in investing activities, such as property and equipment expenditures to install infrastructure in customer
cities in order to deliver our solutions and acquisitions. Our expected material cash requirements are similar to our historical uses of cash as well as in connection with
contingent earnouts, our stock repurchase program and repayment of any outstanding debt obligations under our credit facility, each as described below.
In August 2023, we completed the acquisition of SafePointe for purchase consideration of $25.6 million, consisting of $11.4 million in cash, subject to working capital
adjustments, and the issuance of 549,579 shares of our common stock that was valued at $11.2 million at the time of acquisition. We used $7.0 million of our credit facility to
complete this acquisition. The purchase consideration also included contingent consideration valued at $3.0 million at the time of acquisition, which is related to a contingent
earnout payable of up to $11.5 million based on SafePointe's revenues generated during the remainder of 2023 through 2025. Any earned amounts will be payable within
approximately 120 days after the end of the target year.
In August 2023, we entered into an agreement to purchase patents, source codes and a customer list for $0.5 million in cash and $0.1 million in the form of 4,638 shares
of our common stock, based on the closing price on the date of purchase.
In January 2022, we acquired Forensic Logic for purchase consideration of $31.6 million, consisting of $4.9 million in cash, subject to working capital adjustments,
464,540 shares of our common stock that were valued at $14.3 million at the time of the acquisition. The purchase consideration also included an earnout. The acquisition date
fair value of the contingent earnout was $12.4 million, payable in cash based on Forensic Logic's revenues generated during the years ended December 31, 2022 and 2023. The
earnout for 2022 and 2023 was not earned, so no amounts will be paid.
In November 2020, we completed the acquisition of Technologic for purchase consideration of $21.6 million in cash, subject to working capital adjustments, and the
issuance of 63,901 shares of our common stock that were valued at $2.0 million at the time of the acquisition. The purchase consideration also included an earnout payable
based on Technologic's revenues generated during the years ended December 31, 2021 and 2022. The earnout for 2021 was not earned, so no amounts were paid in respect of
this earnout in 2022. The $1.5 million contingent earnout for 2022 was earned and paid in March 2023.
Stock Repurchase Program
In May 2019, our board of directors approved a stock repurchase program for up to $15.0 million of our common stock. During the year ended December 31, 2022, we
repurchased 106,992 shares of our common stock at an average price of $28.81 per share for $3.1 million and used up the remaining balance under the May 2019 stock
repurchase program in the third quarter ended September 30, 2022. These repurchases were made in open market transactions using cash on hand, and all of the shares
repurchased were retired.
In November 2022, our board of directors approved a new stock repurchase program (the "2022 Repurchase Program") for up to $25.0 million of our common stock.
The shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or by other methods in accordance with federal securities
laws. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors,
including the market price of our common stock, general market and economic conditions and applicable legal requirements. The stock repurchase program does not obligate us
to purchase any particular amount of common stock and may be suspended or discontinued at any time.
75
During the year ended December 31, 2024, we repurchased 418,940 shares of our common stock at an average price of $14.31 per share for approximately $6.0
million, under the 2022 Repurchase Program. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of
December 31, 2024, $13.4 million remains available under the 2022 Repurchase Program.
Credit Facility
In September 2018, we entered into our Umpqua Credit Agreement, initially providing for borrowing capacity of $10.0 million. The agreement was amended in
November 2022 to increase the size of our available credit facility to $25.0 million with an expiration date of October 15, 2024, and further amended in February 2024 to extend
the expiration date to October 15, 2025. The revolving loan facility is for general working capital purposes. Our available credit facility as of December 31, 2024 was $21.0
million. On December 31, 2024, there was $4.0 million outstanding on our line of credit. The Umpqua Credit Agreement subjects us to certain restrictive and financial
covenants, see the risk entitled “The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions” in Part I, Item 1A,
Risk Factors, included in this Annual Report on Form 10-K. We are in compliance with all covenants under the Umpqua Credit Agreement as of December 31, 2024.
Cash Flows
Comparison of Years Ended December 31, 2024 and 2023
The following table presents a summary of our cash flows for the years ended December 31, 2024 and 2023 (in thousands):
Year Ended December 31,
2024
2023
Net cash provided by (used in):
Operating activities
$
22,220
$
10,951
Investing activities
(6,432 )
(16,485 )
Financing activities
(8,247 )
795
Net change in cash and cash equivalents
$
7,541
$
(4,739 )
As of December 31, 2024 and 2023, $0.8 million and $0.5 million in cash was held by our consolidated foreign subsidiaries, respectively.
Operating Activities
Our net income (loss) and cash flows provided by operating activities are impacted by more collections and increase in deferred revenue in 2024 and offset by timing of
account receivable collection and accruals for increased expenses.
Net cash provided by operating activities increased by $11.3 million in the year ended December 31, 2024 compared to net cash provided in the same period of 2023,
primarily due to an increase of $4.4 million in the change of deferred revenue and an increase of $4.4 million in account receivable collection and $1.9 million in other
liabilities.
Investing Activities
Our investing activities consist primarily of capital expenditures to install our solutions in customer coverage areas, purchases of property and equipment, and
investments in intangible assets.
Investing activities used $6.4 million and $16.5 million in the years ended December 31, 2024 and 2023, respectively. We completed our acquisition of SafePointe for
approximately $11.0 million in cash, net of $0.4 million cash acquired at closing during the year December 31, 2023.
76
Financing Activities
Cash generated by financing activities includes net proceeds from the exercise of stock options and proceeds from the employee stock purchase plan (“ESPP”)
purchases, offset by payments for repurchases of our common stock and debt.
Financing activities used $8.2 million in cash during the year ended December 31, 2024. This was primarily due to $3.0 million in payment on our line of credit and
$6.0 million in payments for repurchases of our common stock, offset by $0.7 million in proceeds from ESPP purchases. We paid $1.5 million for contingent consideration
liability in 2023 and $5.6 million for common stock repurchase and raised $7.0 million from line of credit.
Comparison of the Years Ended December 31, 2023 and 2022
A discussion of changes in our cash flows from the year ended December 31, 2022 to the year ended December 31, 2023 can be found in Part II, Item 7, "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" of the 2023 Form 10-K.
Critical Accounting Estimates and Policies
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. The preparation of our consolidated
financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of revenues, assets, liabilities, costs, and expenses. We base our
estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances and evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these estimates. Our most critical accounting policies are summarized below. See Note 2, Summary of Significant Accounting
Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.
Revenue Recognition
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Subscription revenue is recognized over the term of the subscription as
services are provided.
Key judgments include:
Identification of Performance Obligations – Our subscription contracts often include multiple components, such as access to our platform, customer support, and
periodic software updates. We assess whether these components are distinct and require separate revenue recognition.
Determination of Standalone Selling Prices (SSP) – When contracts contain multiple performance obligations, we allocate transaction prices based on the relative SSP
of each component. This requires management judgment, particularly when there is no observable selling price.
Timing of Revenue Recognition – Subscription fees are generally recognized ratably over the contract term. However, upfront fees and non-refundable payments
require assessment to determine whether they represent a separate performance obligation.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees, directors and other service providers based on their fair value on the date of grant and
recognize compensation expense of those awards over the requisite service period. We recognize the impact of forfeitures on stock-based compensation expense as forfeitures
occur. We apply the straight-line method of expense recognition. We use the Black-Scholes option-pricing model to determine the fair value of stock options and ESPP shares.
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of the awards, including the expected term
77
of the award and the price volatility of the underlying stock. We calculate the fair value of the awards by using the Black-Scholes option-pricing model with the following
assumptions:
Expected Volatility - We estimate volatility based on the historical volatility of our stock.
Expected Term - The expected term of the awards represents the period that the stock-based awards are expected to be outstanding. We estimate expected term based
on our historical experience with stock option grants.
Risk-Free Interest Rate - We estimate the risk-free interest rate based on the yield on the U.S. Treasury yield curve in effect at the grant date.
Expected Dividend Yield - We have not declared or paid dividends to date and does not anticipate declaring dividends. As such, expected dividend yield is zero.
Business Acquisitions
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair
values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair
values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and contingent
consideration liabilities. Critical estimates in valuing such intangible assets include, but not limited to, future expected cash flows from customer relationships and developed
technology and discount rates. Critical estimates in valuing contingent consideration liabilities include, but are not limited to, revenues estimates and discount rates.
Goodwill
Goodwill represents the excess of amounts paid over the fair value of net assets acquired from a business acquisition. Goodwill is tested for impairment at the reporting
unit level (operating segment or one level below an operating segment) on an annual basis (October 1) and between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business
climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment
test requires judgment, including the identification of reporting units and determination of the fair value of each reporting unit. We have concluded there is only one reporting
unit for purposes of performing the goodwill impairment test. The fair value of each reporting unit is estimated primarily through the use of market capitalization as a key input.
This analysis involves calculating our market capitalization, which is derived from multiplying our closing stock price by the number of outstanding shares, and then comparing
it against the net asset value. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other
factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment. We performed our annual test for goodwill
impairment as of October 1, 2024 and concluded that no impairment charge was necessary.
Valuation and Impairment of Long-Lived Assets
Our intangible assets with a finite life are primarily composed of developed technology, customer relationships, and tradenames acquired in conjunction with the
acquisition. We make significant judgments in relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Intangible assets are
generally amortized on a straight-line basis over their estimated useful lives of 3 to 14 years. We base the useful lives and related amortization expense on the period of time we
estimate the assets will generate revenue or otherwise be used. We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not
exceed any revised estimated periods from which we expect to realize cash flows from the assets. If a change were to occur in any of the above-mentioned factors or estimates,
the likelihood of a material change in our reported results would increase.
The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical
experience, and external and internal sources of information. We make estimates in determining the future cash flows and discount rates in the quantitative impairment test to
compare the fair value to the carrying value.
78
Income Taxes
We account for income taxes under the asset and liability approach. Under this method, deferred tax assets, including those related to tax loss carryforwards and credits,
and deferred tax liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. We recognize the tax benefit for an uncertain tax position when it meets the more likely than not threshold for recognition.
A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more likely than not that the deferred tax asset will be
recovered. The valuation allowance is determined by assessing both positive and negative evidence to determine whether it is more likely than not that deferred tax assets are
recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. Significant judgment is required in determining whether the valuation allowance should be
recorded against deferred tax assets. In assessing the need for or release of a valuation allowance, we consider all available evidence including past operating results and
estimates of future taxable income.
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Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is
primarily the result of fluctuations in interest rates and foreign exchange rates as well as, to a lesser extent, inflation.
Interest Rate Risk
We are exposed to interest rate risk in the ordinary course of our business. At December 31, 2024, the outstanding balance of our Credit Agreement was $4.0 million,
which bears interest at a variable rate. At December 31, 2024, the rate in effect was approximately 6.5%. Based on the outstanding balance of our Credit Agreement at
December 31, 2024, a 100 basis point increase in the interest rate would increase interest expense by $0.04 million annually.
Our cash includes cash in readily available checking and money market accounts. These securities are not dependent on interest rate fluctuations that may cause the
principal amount of these assets to fluctuate.
We had cash and cash equivalents of $13.2 million as of December 31, 2024, which consists entirely of bank deposits.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenues and operating expenses denominated in currencies other than our functional currency, the U.S. dollar, principally
the South African Rand. Movements in foreign currencies in which we transact business could significantly affect future net earnings. However, if the average value of the
South African Rand had been 10% higher relative to the U.S. dollar during 2024, 2023 or 2022, it would not have resulted in a significant impact to our results of operations for
the years ended December 31, 2024, 2023 or 2022. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess
our approach to manage our risk relating to fluctuations in foreign currency rate.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant
inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition,
and results of operations.
80
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm [PCAOB ID No. 23]
80
Consolidated Balance Sheets
83
Consolidated Statements of Operations
84
Consolidated Statements of Comprehensive Income (Loss)
85
Consolidated Statements of Stockholders’ Equity
86
Consolidated Statements of Cash Flows
87
Notes to Consolidated Financial Statements
88
Report of Independent Registered Public Accounting Firm
To the stockholders and the board of directors of SoundThinking, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SoundThinking, Inc. (the "Company") as of December 31, 2024 and 2023, the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the
related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
81
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to
be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Long-Lived Asset Impairment Evaluation
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company reviews its long-lived assets periodically to determine whether indicators of potential impairment
exist. Potential impairment is determined by comparing the carrying value of the assets with the expected undiscounted future cash flows to be provided by activities of the
business or related asset groups. If the sum of the expected undiscounted future cash flows is less than the carrying value, an impairment loss would be measured by comparing
the amount by which the carrying value exceeds the fair value of the asset. Management identified triggering events during the year ended December 31, 2024, for specific asset
groups, that indicated that long-lived assets could potentially be impaired and performed an impairment test with respect to such asset groups.
While the impairment test did not result in the recording of any impairment loss, the impairment test is complex and involves a high degree of auditor judgment and subjectivity
when determining the asset groups to be evaluated for impairment, estimating expected future cash flows to be provided by activities of the identified asset groups, and
estimating fair values of the assets or asset groups when applicable.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included substantively testing the appropriateness of the judgments and assumptions used by
management in conducting its impairment analysis, including:
•Confirmed the appropriateness of the asset groups evaluated in performing management’s impairment analysis.
•Tested management’s significant assumptions used including forecasted revenue and forecasted fixed and variable costs used in estimating the net cash flows expected to
be provided by the activities of the asset groups, including the completeness and accuracy of the underlying data supporting the assumptions.
•Evaluated audit evidence from events and transactions occurring after the measurement date.
•Performed a sensitivity analysis over the growth rates, operating margin, and other assumptions used in management’s analysis compared to historical performance.
•Compared previously forecasted financial information to historical results to assess the reasonableness of future forecasted financial information used in the analysis.
•Evaluated consistency of assumptions used in management’s analysis with market and industry data.
•Evaluated the consistency of assumptions used in management’s analysis with assumptions used in other areas of the audit.
We have served as the Company's auditor since 2017.
82
/S/ Baker Tilly US, LLP
Minneapolis, MN
March 31, 2025
83
SoundThinking, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
2024
2023
Assets
Current assets
Cash and cash equivalents
$
13,183
$
5,703
Accounts receivable and contract assets, net
25,464
30,700
Prepaid expenses and other current assets
4,881
3,902
Total current assets
43,528
40,305
Property and equipment, net
20,131
21,028
Operating lease right-of-use assets
1,878
2,315
Goodwill
34,213
34,213
Intangible assets, net
33,182
36,938
Other assets
3,861
3,909
Total assets
$
136,793
$
138,708
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable
$
3,442
$
3,031
Line of credit
4,000
7,000
Deferred revenue, short-term
38,401
41,265
Accrued expenses and other current liabilities
10,216
8,521
Total current liabilities
56,059
59,817
Deferred revenue, long-term
5,832
812
Deferred tax liability
1,361
1,226
Other liabilities
1,142
2,096
Total liabilities
64,394
63,951
Commitments and contingencies (Note 18)
Stockholders' equity
Preferred stock: $0.005 par value; 20,000,000 shares authorized; no shares issued and outstanding as of
December 31, 2024 and 2023, respectively
—
—
Common stock: $0.005 par value; 500,000,000 shares authorized;
12,634,485 and 12,761,448 shares issued and outstanding as of December 31, 2024 and 2023, respectively
64
64
Additional paid-in capital
177,021
170,139
Accumulated deficit
(104,298 )
(95,118 )
Accumulated other comprehensive loss
(388 )
(328 )
Total stockholders' equity
72,399
74,757
Total liabilities and stockholders' equity
$
136,793
$
138,708
See accompanying notes to consolidated financial statements.
84
SoundThinking, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share data)
Year Ended December 31,
2024
2023
2022
Revenues
$
102,031 $
92,717
$
81,003
Costs
Cost of revenues
43,542
39,874
34,218
Impairment of property and equipment
605
114
—
Total costs
44,147
39,988
34,218
Gross profit
57,884
52,729
46,785
Operating expenses
Sales and marketing
28,138
26,959
22,416
Research and development
13,925
12,138
10,026
General and administrative
23,894
20,557
15,750
Restructuring expense
336
—
—
Change in fair value of contingent consideration
(554 )
(5,686 )
(9,154 )
Total operating expenses
65,739
53,968
39,038
Operating income (loss)
(7,855 )
(1,239 )
7,747
Other income (expense), net
Interest income (expense), net
(154 )
(48 )
45
Other expense, net
(393 )
(227 )
(240 )
Total other expense, net
(547 )
(275 )
(195 )
Income (loss) before income taxes
(8,402 )
(1,514 )
7,552
Provision for income taxes
778
1,204
1,167
Net income (loss)
$
(9,180 ) $
(2,718 )
$
6,385
Net income (loss) per share, basic
$
(0.72 ) $
(0.22 )
$
0.52
Net income (loss) per share, diluted
$
(0.72 ) $
(0.22 )
$
0.52
Weighted-average shares used in computing net income (loss) per share, basic
12,710,236
12,425,132
12,171,609
Weighted-average shares used in computing net income (loss) per share, diluted
12,710,236
12,425,132
12,317,707
See accompanying notes to consolidated financial statements.
85
SoundThinking, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Year Ended December 31,
2024
2023
2022
Net income (loss)
$
(9,180 )
$
(2,718 )
$
6,385
Other comprehensive loss:
Change in foreign currency translation adjustment, net of taxes
(60 )
(38 )
(52 )
Comprehensive income (loss)
$
(9,240 )
$
(2,756 )
$
6,333
See accompanying notes to consolidated financial statements.
86
SoundThinking Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Common Stock
Additional
Paid-in
Accumulated
Accumulated
Other
Comprehensive
Total
Stockholders'
Equity/
Shares
Par Value
Capital
Deficit
Loss
(Deficit)
Balance at December 31, 2021
11,703,430 $
58 $
132,780 $
(98,785 ) $
(238 ) $
33,815
Exercise of stock options
41,819
1
537
—
—
538
Repurchase of common stock
(106,992 )
—
(3,084 )
—
—
(3,084 )
Issuance of common stock from ESPP purchases
33,161
—
797
—
—
797
Vesting of restricted stock units
107,971
—
—
—
—
—
Issuance of common stock for acquisition
464,540
3
14,263
—
—
14,266
Stock-based compensation
—
—
8,280
—
—
8,280
Foreign currency translation loss
—
—
—
—
(52 )
(52 )
Net income
—
—
—
6,385
—
6,385
Balance at December 31, 2022
12,243,929
62
153,573
(92,400 )
(290 )
60,945
Exercise of stock options
19,021
—
150
—
—
150
Repurchase of common stock
(228,782 )
—
(5,595 )
—
—
(5,595 )
Issuance of common stock from ESPP purchases
37,824
—
740
—
—
740
Vesting of restricted stock units
135,239
—
—
—
—
—
Issuance of common stock for acquisition
554,217
2
11,289
—
—
11,291
Stock-based compensation
—
—
9,982
—
—
9,982
Foreign currency translation loss
—
—
—
—
(38 )
(38 )
Net loss
—
—
—
(2,718 )
—
(2,718 )
Balance at December 31, 2023
12,761,448
64
170,139
(95,118 )
(328 )
74,757
Exercise of stock options
19,765
—
59
—
—
59
Repurchase of common stock
(418,940 )
(1 )
(5,999 )
—
—
(6,000 )
Issuance of common stock from ESPP purchases
61,710
—
694
—
—
694
Vesting of restricted stock units
210,502
1
—
—
—
1
Stock-based compensation
—
—
12,128
—
—
12,128
Foreign currency translation loss
—
—
—
—
(60 )
(60 )
Net loss
—
—
—
(9,180 )
—
(9,180 )
Balance at December 31, 2024
12,634,485 $
64 $
177,021 $
(104,298 ) $
(388 ) $
72,399
See accompanying notes to consolidated financial statements.
87
SoundThinking, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income (loss)
$
(9,180 )
$
(2,718 )
$
6,385
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment
6,211
6,718
6,400
Amortization of intangible assets
3,857
3,920
2,799
Impairment of property and equipment
605
114
—
Stock-based compensation
12,128
9,982
8,282
Change in fair value of contingent consideration
(554 )
(5,686 )
(9,154 )
Deferred taxes
135
541
685
Loss on disposal of property and equipment
24
—
—
Allowance for credit losses
176
99
(74 )
Changes in operating assets and liabilities:
Accounts receivable and contract assets
5,060
619
(14,530 )
Prepaid expenses and other assets
(932 )
(1,357 )
(1,168 )
Accounts payable
792
1,094
(18 )
Accrued expenses and other liabilities
1,740
(149 )
947
Deferred revenue
2,158
(2,226 )
11,630
Net cash provided by operating activities
22,220
10,951
12,184
Cash flows from investing activities:
Purchase of property and equipment
(6,327 )
(5,053 )
(10,915 )
Investment in intangible and other assets
(105 )
(437 )
(6 )
Business acquisition, net of cash acquired
—
(10,995 )
(4,618 )
Net cash used in investing activities
(6,432 )
(16,485 )
(15,539 )
Cash flows from financing activities:
Payment of contingent consideration liability
—
(1,500 )
—
Proceeds from (Payment on) line of credit
(3,000 )
7,000
—
Proceeds from exercise of stock options
59
150
538
Repurchases of common stock
(6,000 )
(5,595 )
(3,084 )
Proceeds from employee stock purchase plan
694
740
797
Net cash provided by (used in) financing activities
(8,247 )
795
(1,749 )
Change in cash, cash equivalents
7,541
(4,739 )
(5,104 )
Effect of exchange rate on cash and cash equivalents
(61 )
(37 )
(53 )
Cash, cash equivalents at beginning of year
5,703
10,479
15,636
Cash, cash equivalents at end of year
$
13,183
$
5,703
$
10,479
Supplemental cash flow disclosures:
Cash paid for interest
$
394
$
151
$
—
Cash paid for tax
$
737
$
889
$
—
Non-cash investing and financing activities:
Property and equipment purchases included in accounts payable
$
88
$
477
$
404
Estimated fair value of contingent consideration for business combination at closing
$
—
$
2,994
$
12,400
Fair value of common stock issued as consideration for acquisitions
$
—
$
11,291
$
14,266
See accompanying notes to consolidated financial statements.
88
SoundThinking, Inc.
Notes to Consolidated Financial Statements
Note 1. Organization and Description of Business
SoundThinking, Inc. (the “Company”) brings the power of digital transformation to law enforcement and security personnel by providing precision-policing and
security solutions, combining data-driven solutions and strategic advisory services for law enforcement, security teams and civic leadership. As of December 31, 2024, the
Company had approximately 328 customers and to date have worked with approximately 2,100 agencies to help drive more efficient, effective, and equitable public safety
outcomes.
In April 2023, the Company's name changed to SoundThinking, Inc., reflecting its broader impact on public safety through a growing set of industry-leading law
enforcement tools and community-focused solutions. As part of the rebrand, the Company introduced its SafetySmart™ platform that includes six data-driven tools consisting
of (i) its flagship product, ShotSpotter®, the leading outdoor gunshot detection, location and alerting system trusted by 177 cities and 20 universities and corporations as of
December 31, 2024, (ii) CrimeTracer™, a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records
from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve crimes, (iii) CaseBuilder™, a one-stop investigative management system
for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ that directs the deployment of patrol and community anti-violence resources in an objective way to
help maximize the impact of limited resources and improve community safety, (v) PlateRanger™ powered by Rekor®, an advanced license plate recognition ("ALPR") and
vehicle identification solution that leverages artificial intelligence ("AI") and machine learning to enhance investigative efficiency and provide real-time data sharing for law
enforcement, introduced in July 2024 through a strategic partnership with Rekor Systems, Inc and (vi) SafePointe™, an AI-based weapons detection system. The Company
offers its solutions on a software-as-a-service subscription model to its customers.
ShotSpotter for Campus and ShotSpotter for Corporate, are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate
campuses, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders
to arrive. In 2019, the Company created a technology innovation unit, SoundThinking Labs, to expand its efforts supporting innovative uses of its technology to help protect
wildlife and the environment. Additionally, the Company provides maintenance and support services and professional software development services to two customers,
through sales channel intermediaries.
The Company’s principal executive offices are located in Fremont, California. The Company has six wholly-owned subsidiaries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of
America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding financial reporting. In the opinion of
management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of
operations, comprehensive income (loss), stockholders’ equity and cash flows for the
89
year ended December 31, 2024, but are not necessarily indicative of the results of operations or cash flows to be anticipated for any future period.
The consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been
eliminated during consolidation.
The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the
consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its
significant estimates including the valuation of accounts receivable, the lives and realization of tangible and intangible assets and goodwill, contingent consideration
liabilities, stock-based compensation expense, customer life, revenue recognition, contingent liabilities related to legal matters, and income taxes including deferred taxes
and any related valuation allowance. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions it believes to
be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the Company’s financial position and
results of operations.
Revenue Recognition – Subscription Services
The Company generates annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generates annual subscription revenues
from the deployment of SafePointe on a per-lane basis. The Company's three security solutions, ShotSpotter for Campus and ShotSpotter for Corporate, as well as
CaseBuilder, CrimeTracer and ResourceRouter are typically sold on a subscription basis, each with a customized deployment plan.
The Company generates a majority of its revenues from the sale of platform subscription services, in which gunshot data generated by Company-owned sensors and
software is sold to customers through a cloud-based hosting application for a specified contract period. Typically, the initial contract period is one to three years in length.
The subscription contract is generally noncancelable without cause. Generally, these service arrangements do not provide the customer with the right to take possession of
the hardware or software supporting the subscription service at any time. A small portion of the Company’s revenues are generated from the delivery of setup services to
install Company-owned sensors in the customer’s coverage area and other services including training and a license to integrate with third-party applications.
The Company generally invoices customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when the subscription
service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. This
applies to ShotSpotter, ShotSpotter for ShotSpotter for Campus, ShotSpotter for Corporate, CaseBuilder, ResourceRouter and SafePointe. If it is a multi-year contract, the
Company invoices 50% of the first-year fees upon contract execution and the remaining 50% of the first-year fees when the service is operational and ready to go live. The
following years are invoiced 100% at each annual anniversary. For CrimeTracer, the Company generally invoices the first year's subscription price when the contract is
fully executed. The Company invoices CrimeTracer subscription service renewals for 100% of the total contract value when the renewal contract is executed. All fees billed
in advance of services being delivered are recorded as deferred revenue.
For ShotSpotter, the pricing model is based on a per-square-mile basis. For SafePointe, the pricing model is based on a per-lane basis. For ShotSpotter for Campus,
ShotSpotter for Corporate and CaseBuilder, the pricing model is on a customized-site basis. For ResourceRouter and CrimeTracer, pricing is currently customized, generally
tied to the number of sworn police officers in a particular city. The Company may also offer discounts or other incentives in conjunction with all ShotSpotter sales in an
effort to introduce the product, accelerate sales or extend renewals for a
90
longer contract term. As a result of the process for invoicing contracts and renewals upon execution, cash flows from operations and accounts receivable can fluctuate due to
timing of contract execution and timing of deployment.
The Company recognizes revenues upon the satisfaction of performance obligations. At contract inception, the Company assesses the services promised in its
contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product or service (or bundle of services) that is distinct. To
identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by
customary business practices. The Company determined that the subscription services, training, and licenses to integrate with third-party applications are each distinct and
represent separate performance obligations. The setup activities are not distinct from the subscription service and are combined into the subscription service performance
obligation. However, setup fees may provide a material right to the customer that has influence over the customer's decision to renew. The total contract value is allocated to
each performance obligation identified based on the standalone selling price of the service. Discounts are allocated pro-rata to the identified performance obligations.
Revenues from subscription services are recognized ratably, on a straight-line basis, over the term of the subscription. Revenues from material rights are recognized
ratably over the period in which they are determined to provide a material right to the customer, which is generally the longer of the estimated customer life or contract,
which is typically three years. Revenues from training and third-party integration license fees are recognized upon delivery which generally occurs when the subscription
service is operational and ready to go live.
Subscription renewal fees are recognized ratably over the term of the renewal, which is typically one year. While most customers elect to renew their agreements, in
some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, the Company stops recognizing
subscription revenues at the end of the current contract term, even though services may continue to be provided for a period of time until the renewal process is completed.
Once the renewal is complete, the Company recognizes subscription revenues for the period between the expiration of the original term of the agreement and the completion
of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription, then the remaining fees from material rights, if any,
are immediately recognized.
The Company capitalizes certain incremental costs of obtaining a contract, which includes sales commissions, based on the first-year fee upon booking of a new
contract. These capitalized commissions are amortized on a straight-line basis over the expected customer life, which is determined to be five years. As there are not
commensurate commissions earned on renewals of the subscription services, the Company recognizes the commissions as expense when the renewal invoice is paid instead
of capitalizing them. Amortization of capitalized commissions is included in sales and marketing expense and was $1.4 million, $1.1 million, and $0.8 million for the years
ended December 31, 2024, 2023 and 2022, respectively.
Revenue Recognition – Software License, Maintenance and Support, and Professional Services
Through Technologic, the Company generates revenues through the sale of (i) a proprietary software license and maintenance and support services and (ii)
professional software development services to a single customer, through a sales channel intermediary. The sales channel intermediary contract includes a renewable
subscription for software and related maintenance and support services. The contract also provides for the procurement of professional services, such as for software
development and testing for product feature enhancements, by executing supplementary work orders.
The Company recognizes revenue from the software license and related maintenance and support services revenues upon the satisfaction of performance obligations.
It determined that the term-based software license should be combined with the maintenance and support services as a single performance obligation. The nature of the
maintenance and support services, inclusive of the Company's obligation to provide additional, unspecified software functionality over the license term, in allowing this
single customer to be flexible in utilizing the customized software to respond to the changing regulatory environment, are critical to the customer’s ability to derive benefit
and value from the license. Contractually, the Company provides continuous access to the software, maintenance and support services, helpdesk, and technical support over
the contract term, hence a time-elapsed method is used to recognize revenue. There is a fixed and variable component to the maintenance and support services. Revenues
from the software
91
license and fixed maintenance and support services are recognized ratably over the term of the contract because the Company's obligation to provide the license and related
support services is uniform over the license term. The variable portion is based on time and materials provided for higher-level technical support. For the time and materials
component, the Company has elected the right-to-invoice practical expedient, allowing it to recognize revenue based on the amount it has the right to invoice the customer,
provided that amount directly corresponds with the value of its completed performance to date. This approach results in revenue recognition as the Company performs the
services and incurs the costs. The Company generally invoices for both the fixed and time and materials services a month in arrears. If this customer does not renew prior to
the contract term expiring, the Company stops recognizing revenues at the end of the current contract term, even though services may continue to be provided for a period of
time until the renewal process is completed. Once the renewal is complete, revenues are recognized for the period between the expiration of the original contract term and
the completion of the renewal process in the month in which the renewal is executed.
Professional services revenue consists of fees typically associated with the design, development and testing of product feature enhancements requested by the
customer. The customer procures additional development services as needed, and generally based upon annual development plans negotiated by and between the customer
and the Company. Professional services do not result in significant customization of the maintenance and support services and are considered distinct services. All, and any
part of the output, of the Company’s professional services towards such product feature enhancements, belong to the customer. Accordingly, the Company satisfies the
performance obligations over time as the performance of work typically creates or enhances an asset that the customer controls as the asset is created or enhanced.
The Company also has a contract for an enterprise CaseBuilder solution through a second sales channel intermediary that includes supplemental professional
services to integrate CaseBuilder with the customer's existing systems that will remain in place.
As these professional services each have a fixed contract fee, the Company recognizes revenue over time proportionally as work is performed, based on cumulative
resource costs incurred as a percentage of total forecast costs for the project. Management uses significant judgment in making these estimates, which affect the timing of
revenue recognition, including how much revenue to recognize in each period, and in estimating the timing of revenue recognition for remaining performance obligations
(see Note 3).
Gross Versus Net Presentation
The Company’s single software license on premise instance and related maintenance and support service agreement was facilitated through a sales channel
intermediary. The Company presents the total value of the billings to the end-user as revenue (or gross) and that portion of the billings to the customer retained by the sales
channel intermediary as a sales cost which is included in sales and marketing in the accompanying statement of operations, as the Company determined that it is the
principal in the arrangement. The Company’s conclusion is based on its role in controlling the products and services consumed by the end-customer throughout the license
term or development life cycle, combined with its control over the price charged to the end-user for such products and services, and the inability of the sales channel
intermediary to direct or control the services provided to the customer. The fees paid to the sales channel intermediary are expensed as incurred as it relates to a period of
performance of one year, and the sales channel intermediary is paid the same rate of commission on license term renewals or additional professional services that are sold to
the customer.
Costs
Costs include the cost of revenues and charges for impairment of property and equipment. Cost of revenues primarily include depreciation expense associated with
capitalized customer acoustic sensor networks, communication expenses, costs related to hosting the Company's service application, costs related to operating its Incident
Review Center (the “IRC”), providing remote and on-site customer support and maintenance and forensic services, personnel and related costs of operations, stock-based
compensation and allocated facilities and general operational overhead,
92
which includes information technology, facility and equipment depreciation costs. The Company expenses all costs as incurred for services that are not recoverable under an
enforceable contract.
Advertising and Public Relations Costs
Advertising and public relations costs are expensed as incurred. Advertising and public relations costs were $2.1 million, $2.0 million, and $1.5 million for the years
ended December 31, 2024, 2023 and 2022, respectively, and were included in sales and marketing expense in the consolidated statements of operations.
Research and Development Costs
Research and development costs are expensed as incurred and consisted primarily of salaries and benefits, consultant fees, certain facilities costs, and other direct
costs associated with the continued development of the Company’s solutions.
Product development costs are expensed as incurred until technological feasibility has been established, which the Company defines as the completion of all
planning, designing, coding, and testing activities that are necessary to establish products that meet design specifications including functions, features and technical
performance requirements. The Company has determined that technological feasibility for its software products is reached shortly before they are released for sale. Costs
incurred after technological feasibility is established are not significant, and accordingly the Company expenses all research and development costs when incurred. The
Company capitalizes the cost of technology acquired through a business combination based on the fair value of the assets acquired.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and highly liquid investments with an original maturity of three months or less.
At December 31, 2024 and 2023, the Company’s cash and cash equivalents consisted of cash deposited in financial institutions.
Restricted cash
Cash balances that are legally, contractually or otherwise restricted as to withdrawal or usage are considered restricted cash. The Company had no restricted cash
balances at December 31, 2024 and December 31, 2023.
Foreign Currency
The functional currency for the Company’s foreign subsidiaries is the local currency. The assets and liabilities of the subsidiary are translated into U.S. dollars using
the exchange rate as of each balance sheet date. Revenues and expenses are translated at the average exchange rates for the period. Gains and losses from translations are
recognized in foreign currency translation included in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. Foreign currency
exchange gains and losses that are realized are recorded in other expense, net, in the accompanying consolidated statements of operations.
Accounts Receivable and Contract Assets, Net
Accounts receivable, net consist of trade accounts receivables from the Company’s customers, net of allowance for credit losses if deemed necessary, and are
recorded at the invoiced amount. Accounts receivable also consists of trade accounts receivables (net of any commissions) from the sales channel intermediary through
which the Company provides software license, maintenance and support, and professional services. The Company does not require collateral or other security for accounts
receivable. Contract assets consist of revenues recognized in advance of invoicing the customer for amounts that the Company has the right to invoice. The Company does
not charge interest on accounts receivable that are past due.
The Company periodically evaluates the collectability of its accounts receivable and provides an allowance for credit losses based on the Company’s historical
experience. The Company had an allowance for credit losses of $0.3 million and $0.1 million at December 31, 2024 and 2023, respectively.
93
Concentrations of Risk
Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts
receivable from trade customers. The Company maintains its deposits of cash and cash equivalents at three domestic and four international financial institutions. The
Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by
the Federal Deposit Insurance Corporation ("FDIC") and other local country government agencies. The Company generally places its cash and cash equivalents with
high-credit quality financial institutions. To date, the Company has not experienced any losses on its cash and cash equivalents. As of December 31, 2024, the
Company had approximately $12.4 million, $5,000, and $7,000 deposited with the Company's three domestic financial institutions for which $250,000 is insured per
institution under FDIC limits.
Concentration of Accounts Receivable and Contract Assets — At December 31, 2024, one customer accounted for 19% of the Company’s total accounts receivable. At
December 31, 2023, two customers accounted for 24% and 10% of the Company’s total accounts receivable.
Concentration of Revenues — For the year ended December 31, 2024, two customers accounted for 23% and 10%, of the Company’s revenues. For the year ended
December 31, 2023, two customers accounted for 25% and 9%, of the Company’s revenues. For the year ended December 31, 2022, two customers accounted for 30%
and 10%, of the Company’s revenues.
Concentration of Suppliers — The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole
manufacturer of the Company’s proprietary sensors.
Business Acquisitions
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their
estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When
determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets
and contingent consideration liabilities. Acquisition-related expenses are recognized separately from the business combination and are recognized as general and
administrative expense as incurred.
Goodwill
Goodwill represents the excess of amounts paid over the fair value of net assets acquired from an acquisition. Goodwill is tested for impairment at the reporting unit
level (the Company has one reporting segment and tests at the company level) on an annual basis (October 1) and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in
the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company operates as
one reportable segment. It performed its annual test for goodwill impairment as of October 1, 2024 and concluded that
94
no goodwill impairment charge was necessary. Since inception through December 31, 2024, the Company has not recorded any goodwill impairment.
Intangible Assets
Intangible assets consist of customer relationships, software technology, tradename and acquired patents and capitalized legal fees related to obtaining patents.
Patent assets are stated at cost, less accumulated amortization. Customer relationships, tradename and software technology are recorded at fair value as of the date of the
acquisition. Intangible assets are amortized on an attribution method, over their expected useful lives, which range from three years for patents, eight to 11 years for software
technology, nine years for tradename, and seven to 15 years for customer relationships.
Property and Equipment, net
Property and equipment, net, is stated at cost, less accumulated depreciation and amortization. The Company depreciates property and equipment using the straight-
line method over their estimated useful lives, ranging from three to five years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the
remaining lease term. Costs incurred to develop software for internal use and for the Company’s solutions are capitalized and amortized over such software’s estimated
useful life. Internally developed software costs capitalized during all periods presented have not been material.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured by comparing the carrying amount of the asset group to the group's future undiscounted cash flows expected to be generated from
the existing service potential of the asset group for the period of time consistent with the remaining life of the group's primary asset. If such assets are determined to be
impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the future undiscounted net cash flows arising
from the assets. Assets to be disposed of are reported at the lower of their carrying amounts or fair value less cost to sell.
Royalty Expense
In 2009, the Company entered into a license agreement with a third-party relating to a patented gunshot digital imaging system that facilitates integration with
certain third-party systems. The terms of the license agreement require the Company to pay a one-time fee of $5,000 for each license sold to a customer allowing the
customer to integrate their ShotSpotter service with a third-party application, such as a video management system, with a minimum annual amount due of $75,000. The
Company incurred $155,000 in 2023 and the minimum amount of $75,000 in 2022 related to this agreement. The license agreement terminated in November 2023.
Fair Value Measurements
The Company uses a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the
measurement date. The three-level hierarchy prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information. Fair
value focuses on an exit price and is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The inputs or methodology used for valuing
95
financial instruments are not necessarily an indication of the risks associated with investing in those financial instruments. The three-level hierarchy for fair value
measurements is defined as follows:
Level I — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level II — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level III — Inputs to the valuation methodology are unobservable and supported by little or no market data. This includes certain pricing models, discounted cash
flow methodologies and similar techniques that use significant unobservable inputs.
An asset’s or a liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Stock Repurchases
The Company has a stock repurchase program that is executed through purchases made from time to time, including in the open market. The Company retires
repurchased shares of common stock, reducing common stock with any excess of cost over par value recorded to accumulated deficit. Issued and outstanding shares of
common stock are reduced by the number of shares repurchased. No treasury stock is recognized in the consolidated financial statements. In August 2022, the Inflation
Reduction Act enacted a 1% excise tax on net share repurchases after December 31, 2022. Any excise tax incurred on share repurchases is recognized as part of the cost
basis of the shares acquired.
Stock-Based Compensation
The Company generally grants options to purchase shares of its common stock to its employees, directors and non-employees for a fixed number of shares with an
exercise price equal to the fair value of the underlying shares at the grant date. Stock-based compensation expense is recognized ratably over the requisite service period as
the underlying options vest. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options.
The Company estimates the grant date fair value of its common stock options using the following assumptions:
Expected Term — The expected term represents the weighted-average period that the stock-based compensation awards are expected to be outstanding. It was
calculated based on the Company's historical experience with its stock option grants.
Risk-Free Interest Rate — The risk-free interest rate is based on the yield on U.S. Treasury yield curve in effect at the grant date.
Expected Volatility —The expected volatility is based on the historical volatility of the Company’s stock.
Dividend Yield — Expected dividend yield is based on the Company's dividend policy at the time the options were granted. The Company does not plan to pay any
dividends in the foreseeable future. Consequently, it has historically used an expected dividend yield of zero.
The Company uses the market closing price of its common stock as traded on the Nasdaq Capital Market to determine fair value of its common stock for use in the
Black-Scholes option pricing model.
The Company generally grants unvested restricted stock unit awards to non-employee directors and executive management for a fixed number of shares and a fixed
vesting schedule. The restricted stock unit awards are valued
96
using the closing price on the date of grant and stock-based compensation is recognized ratably over the requisite service period. Forfeitures are recognized as and when they
occur.
Segment Information
The chief operating decision maker is the Company's Chief Executive Officer, who allocates resources and assesses financial performance based upon discrete
financial information at the consolidated level. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for
operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, the Company has determined that it operates as a single
operating and reportable segment.
Leases
The Company leases office space under operating leases with expiration dates through 2027. The Company determines whether an arrangement constitutes a lease at
inception and records lease liabilities and right-of-use assets on our consolidated balance sheets at lease commencement. The Company measure lease liabilities based on
the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or our incremental borrowing
rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease.
Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease and are included in operating lease right-of-use assets, accrued expenses and other current liabilities and other
liabilities (long term) on the Company’s consolidated balance sheets.
The Company has made an accounting policy election to not recognize short-term leases, or leases that have a lease term of 12 months or less at commencement
date, within its consolidated balance sheets and to recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
Income Taxes
The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable
or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than not that a deferred tax
asset will not be realizable. Changes in tax rates are reflected in the tax provision as they occur.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination,
the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the future in excess of
their net recorded amount, the Company makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the
consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares and common stock equivalents
outstanding during
97
the period. Common stock equivalents are only included when their effect is dilutive. Common stock equivalents include unvested restricted stock units, convertible
preferred stock, warrants and outstanding stock options.
Recent Accounting Pronouncements Adopted
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which
provides amendments to improve reportable segment disclosures requirements. The Company adopted ASU 2023-07 for the fiscal year beginning January 1, 2024. As a
result, the Company has included the additional required disclosures in Note 19 with retrospective presentation to all prior periods presented in the financial statements. The
adoption of ASU 2023-07 did not impact the Company’s results of operations, cash flows, or balance sheets.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the transparency of income tax
disclosures, primarily by requiring public business entities to disclose on an annual basis, specific categories in the rate reconciliation tabular presentation, as well as by
providing additional information for reconciling items that meet a quantitative threshold. The ASU also requires disaggregated disclosures of federal, state and foreign
income taxes paid. The new guidance is effective for fiscal years beginning after December 15, 2024. The Company does not expect implementation of the new guidance to
have a material impact on its unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Effective
Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40),
which requires disclosure of specific information about costs and expenses within relevant expense captions on the face of the income statement, qualitative descriptions for
expense captions not specifically disaggregated quantitatively, and the total amount and definition of selling expenses for interim and annual reporting periods. This
standard is effective for the Company's annual reporting period beginning January 1, 2027 and interim reporting periods beginning January 1, 2028 and should be applied
on a retrospective or prospective basis, with early adoption permitted. We are currently assessing the impact of adopting this standard on our consolidated financial
statements.
Note 3. Revenue Related Disclosures
The changes in deferred revenue were as follows (in thousands):
Year Ended December 31,
2024
2023
Beginning balance
$
42,077
$
43,720
Deferred revenues acquired (Note 4 - Acquisitions)
—
581
New billings
100,094
87,918
Revenue recognized during the year from beginning balance
(41,035 )
(41,288 )
Revenue recognized during the year from new billings
(56,903 )
(48,854 )
Ending balance
$
44,233
$
42,077
98
The following table presents remaining performance obligations for contractually committed revenues as of December 31, 2024 (in thousands):
2025
$
57,786
2026
31,151
2027
12,559
Thereafter
2,433
Total
$
103,929
In its Annual Report on Form 10-K for the year ended December 31, 2023, the Company identified an incorrect classification of the disclosure in the changes in
deferred revenue. The revenue recognized during the year from the beginning deferred revenue balance was reported as $36.8 million and corrected to $41.3 million, and
revenue recognized during the year from new billings was reported as $53.4 million and corrected to $48.9 million.
The timing of revenue recognition included in the table above is based on estimates of go-live dates for contracts not yet live. Contractually committed revenue
includes deferred revenue as of December 31, 2024 and amounts under contract that will be invoiced after December 31, 2024.
During the year ended December 31, 2024, the Company recognized revenues of $99.3 million from customers in the United States and $2.7 million from customers
in South Africa, the Bahamas and Uruguay. During the year ended December 31, 2023, the Company recognized revenues of $90.8 million from customers in the United
States and $1.9 million from customers in South Africa and the Bahamas and Uruguay. During the year ended December 31, 2022, the Company recognized revenues of
$80.2 million from customers in the United States and $0.8 million from customers in South Africa and the Bahamas.
During the year ended December 31, 2024, the Company recognized revenues of $99.1 million from monthly subscription, maintenance, and support services, and
$2.9 million from professional software development services. During the year ended December 31, 2023, the Company recognized revenues of $87.5 million from monthly
subscription, maintenance, and support services and $5.2 million from professional software development services. During the year ended December 31, 2022, the Company
recognized revenues of $75.4 million from monthly subscription, maintenance, and support services and $5.6 million from professional software development services.
Note 4. Acquisitions
SafePointe, LLC
During the third quarter of 2023, the Company completed the acquisition of 100% of the membership interests in SafePointe for purchase consideration of $11.4
million in cash, subject to working capital adjustments, of which $1.1 million is indemnification escrow cash, and $11.2 million in the form of 549,579 shares of the
Company's common stock based on the closing price on the date of acquisition, of which $1.1 million is indemnification escrow stock. The purchase consideration also
included a contingent earnout payable based on SafePointe’s revenues generated during 2023 through 2025. The acquisition date fair value of the contingent earnout was $3.0
million, resulting in a total purchase consideration of $25.6 million. Up to $11.5 million in earnout will be payable based on SafePointe’s revenues generated during the
remainder of 2023 and the years ended December 31, 2024 and 2025. The Company expects to recover some amounts through escrow claims under the terms of the
membership purchase agreement. The Company borrowed $7.0 million under the Umpqua Credit Agreement (See Note 9, Financing Arrangements) to partially fund the
purchase consideration. The SafePointe acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations. The acquisition allows
the Company to enter the AI-based weapons detection market.
99
The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date (in thousands):
Cash and cash equivalents
$
394
Accounts receivable and contract assets
370
Property and equipment, net
717
Customer relationships
2,500
Software technology
9,200
Tradename
1,100
Goodwill
11,242
Other assets
101
Accrued expenses and other current liabilities
(52 )
Deferred revenue
(581 )
Net assets acquired
24,991
Escrow claim
581
Total estimated consideration
$
25,572
The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of SafePointe and primarily represents
the value of cash flows from future customers and the employee workforce. The Company expects to deduct the amortization of goodwill and intangible assets for tax
purposes. A portion of the amortization deduction commences upon settlement of contingent consideration liabilities. The Company valued the intangible assets using
income-based approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general
and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at
20.9%, reflecting the risk profile of the assets.
The Company will amortize the acquired customer relationships for 12 years, the acquired software technology for 11 years and the acquired tradename for 9 years.
There were no acquisition-related expenses for the year ended December 31, 2024. Acquisition-related expenses were $0.8 million for the year ended December 31,
2023, and are included in general and administrative expense.
Note 5. Fair Value Measurements
In November 2020, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of LEEDS, LLC (“LEEDS”). This
fair value measurement was classified as Level III within the fair value hierarchy as prescribed by Accounting Standards Codification 820-10-35-37 ("ASC 820, Fair Value
Measurement"). In May 2023, the Company renamed LEEDS to Technologic Solutions, LLC (“Technologic”). During the first quarter of 2023, the Company paid the $1.5
million Technologic contingent consideration balance, in full settlement of its obligations under the purchase agreement.
In January 2022, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of Forensic Logic to be $12.4 million as
of the acquisition date, using a Monte Carlo simulation approach with asset and revenue volatility of 60.0% and 28.0%, respectively. This fair value measurement is classified
as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement. During the years ended December 31, 2023 and 2022, the fair value of the
contingent consideration was decreased to zero by $3.2 million and $9.2 million, respectively, based upon adjustments to recorded liabilities as a result of actual revenues. As
a result of actual revenue recognized, the company did not pay any amounts under the contingent consideration and no further contingent payments remain.
In August 2023, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of SafePointe to be $3.0 million as of the
acquisition date, using a Monte Carlo simulation approach with asset and revenue volatility of 76.1% and 25.8%, respectively. This fair value measurement is classified as
Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement. During the year ended
100
December 31, 2024 and 2023, the fair value of the contingent consideration was decreased by $0.6 million and $2.4 million, respectively, based upon revised estimated 2024
and 2025 revenue targets.
The changes in the fair value of the aggregate contingent consideration liability all of which were classified as Level III are summarized below (in thousands):
Year Ended December 31,
2024
2023
Beginning balance
$
554 $
4,746
Payment of contingent consideration liability
—
(1,500 )
Contingent consideration - SafePointe (Note 4 - Acquisitions)
—
2,994
Change in fair value of contingent consideration
(554 )
(5,686 )
Ending balance
$
— $
554
There were no transfers into or out of Level III during the year ended December 31, 2024 and 2023.
The Company has $10.0 million in a money market fund. The fair value measurement was classified as Level I within the fair value hierarchy as prescribed by
Accounting Standards Codification 820-10-35-37 ("ASC 820, Fair Value Measurement").
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash, trade
and other receivables, net, and accounts payable, approximate their fair value due to their short maturities.
Note 6. Goodwill
The changes in goodwill for 2024 and 2023 are as follows (in thousands):
December 31,
December 31,
2024
2023
Beginning balance
$
34,213 $
22,971
Acquisition of SafePointe (Note 4 - Acquisitions)
—
11,242
Ending balance
$
34,213 $
34,213
The Company has not recorded any goodwill impairment charges through December 31, 2024.
Note 7. Intangible Assets, net
Intangible assets as of December 31, 2024 and 2023 are as follows (in thousands):
December 31, 2024
Weighted-Average
Amortization Period (in years)
Gross
Accumulated
Amortization
Net
Customer relationships
14
$
25,470
$
(6,307 )
$
19,163
Acquired software technology
9
16,340
(3,911 )
12,429
Patents and intellectual property
3
2,068
(1,411 )
657
Tradename
9
2,100
(1,167 )
933
Total intangible assets, net
$
45,978
$
(12,796 )
$
33,182
101
December 31, 2023
Gross
Accumulated
Amortization
Net
Customer relationships
$
25,470
$
(4,467 )
$
21,003
Acquired software technology
16,340
(2,199 )
14,141
Patents
1,966
(1,227 )
739
Tradename
2,100
(1,045 )
1,055
Total intangible assets, net
$
45,876
$
(8,938 )
$
36,938
Intangible assets amortization expense was $3.9 million, $3.9 million, and $2.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The following table presents future intangible asset amortization as of December 31, 2024 (in thousands):
2025
$
3,803
2026
3,812
2027
3,812
2028
3,761
2029
3,649
Thereafter
14,345
Total
$
33,182
Note 8. Details of Certain Consolidated Balance Sheet Accounts
Prepaid expenses and other current assets (in thousands):
December 31,
December 31,
2024
2023
Deferred commissions
$
1,477
$
1,295
Prepaid software and licenses
1,306
1,147
Prepaid insurance
1,069
806
Short-term deposits
581
406
Other prepaid expenses
447
199
Other
1
49
$
4,881
$
3,902
Accounts receivable and contract assets, net (in thousands):
December 31,
December 31,
2024
2023
Accounts receivable
$
19,635
$
24,574
Contract assets
6,104
6,225
Allowance for credit losses
(275 )
(99 )
$
25,464
$
30,700
Other assets (in thousands):
December 31,
December 31,
2024
2023
Deferred commissions
$
3,152
$
3,205
Escrow claim (Note 4 - Acquisitions)
581
581
Other
128
123
$
3,861
$
3,909
102
Property and equipment, net (in thousands):
December 31,
December 31,
2024
2023
Deployed equipment
$
53,370
$
50,467
Construction in progress
5,014
3,513
Computer equipment
2,869
2,771
Software
1,238
1,238
Furniture and fixtures
1,244
1,189
Leasehold improvements
907
979
Vehicles
184
263
64,826
60,420
Accumulated depreciation and amortization
(44,695 )
(39,392 )
$
20,131
$
21,028
Depreciation expense during the years ended December 31, 2024, 2023 and 2022 was $6.2 million, $6.7 million, and $6.4 million, respectively.
Accrued expenses and other current liabilities (in thousands):
December 31,
December 31,
2024
2023
Personnel-related accruals
$
8,252
$
6,500
Operating lease liabilities
909
964
Professional fees
137
407
Sales/use tax payable
141
100
Other
777
550
$
10,216
$
8,521
Other liabilities (long-term) (in thousand):
December 31,
December 31,
2024
2023
Operating lease liabilities
$
1,142
$
1,542
Contingent consideration liability
—
554
$
1,142
$
2,096
Note 9. Financing Arrangements
The Company has a Credit Agreement with Umpqua Bank (the "Credit Agreement"), which allows borrowings of up to $25.0 million under a revolving facility and
provides for a letter of credit sub-facility of up to $7.5 million. The Credit Agreement had an original expiration date of October 15, 2024. On February 12, 2024, the
Company entered into an amendment to the Credit Agreement extending the maturity date to October 15, 2025.
Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company. Any amounts outstanding under the letter of credit sub-facility
reduce the amount available for the Company to borrow under the Revolving Facility.
Under the Credit Agreement, the Company has the option to select an interest rate based on either (1) a base rate, which fluctuates daily and is the greater of (a) the
prime rate in effect as of any date of determination and (b) the SOFR rate as of such date of determination plus 1.0% per annum or (2) a SOFR rate, which can be for a period
of 30, 90 or 180 days at the Company’s option and is equal to the SOFR rate as published by CME Group Benchmark Administration Limited, in each case plus 2.0% per
annum. Any letters of credit issued under the Credit Agreement
103
will be subject to a fee of 2.0% per annum. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time prior to termination of the Credit Agreement.
The Company is subject to certain financial covenants in the Credit Agreement, which include: (1) maintaining a ratio of consolidated funded debt, excluding the
amount of any unsecured convertible notes issued by the Company, to consolidated earnings before income tax, depreciation and amortization (“Consolidated EBITDA”) of
not greater than 3.00 to 1.00 measured at the end of each fiscal quarter and (2) maintaining a ratio of Consolidated EBITDA to interest charges of at least 2.00 to 1.00
measured at the end of each fiscal quarter. The Company was in compliance with its covenants as of December 31, 2024.
The Credit Agreement contains various negative covenants that limit, subject to certain exclusions, the Company’s ability to incur indebtedness, make loans, invest in
or secure the obligations of other parties, pay or declare dividends, make distributions with respect to the Company's securities, redeem outstanding shares of the Company’s
stock, create subsidiaries, materially change the nature of its business, enter into related party transactions, engage in mergers and business combinations, the acquisition or
transfer of Company assets outside of the ordinary course of business, grant liens or enter into collateral relationships involving company assets or reincorporate, reorganize
or dissolve the Company.
The available loan facility as of December 31, 2024 and December 31, 2023 was approximately $21.0 million and $18.0 million, respectively. As of December 31,
2024, there was $4.0 million outstanding on the Company's line of credit, which the Company borrowed in August 2023 to partially fund the acquisition of SafePointe. There
were $7.0 million outstanding on December 31, 2023. The interest expense recorded for the year ended December 31, 2024 was $0.4 million, based on a weighted-average
interest rate of 6.28%.
Note 10. Related Party Transactions
During the years ended December 31, 2024, 2023 and 2022, the Company recognized $0.1 million, $0.1 million, and $0.8 million in revenues, respectively, from
SoundThinking Labs projects with charitable organizations that have received donations from one of the Company’s directors and one of the Company’s significant
shareholders.
Note 11. Income Taxes
The domestic and foreign components of net income (loss) before income tax were as follows (in thousands):
Year Ended December 31,
2024
2023
2022
Domestic
$
(8,277 ) $
(1,596 ) $
7,583
Foreign
(125 )
82
(31 )
Net income (loss) before income tax
$
(8,402 ) $
(1,514 ) $
7,552
The provision (benefit) for income tax consists of the following (in thousands):
Year Ended December 31,
2024
2023
2022
Current:
Federal
$
— $
— $
—
State
485
656
455
Foreign
158
7
27
Total
643
663
482
Deferred:
Federal
75
277
316
State
60
264
369
Foreign
—
—
—
Total
135
541
685
Total provision for income tax
$
778 $
1,204 $
1,167
104
A reconciliation of income taxes at the statutory federal income tax rate to income tax expense included in the accompanying consolidated statements of operations
is as follows (in thousands):
December 31,
2024
2023
2022
Income tax (benefit) at statutory rate
$
(1,748 ) $
(312 ) $
1,545
Change in valuation allowance
2,284
(76 )
(1,715 )
Indefinite-lived asset (goodwill)
135
541
685
State tax
(226 )
354
239
Change in deferred
(87 )
616
415
Stock-based compensation
462
197
111
Research and development credits
(371 )
(369 )
(271 )
Foreign rate differential
191
23
43
Other
138
230
115
Total
$
778 $
1,204
$
1,167
Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 were as follows
(in thousands):
Year Ended December 31,
2024
2023
Deferred tax assets:
Net operating losses
$
13,492
$
15,302
Stock-based compensation
5,713
4,094
Section 174 capitalized expenditures
5,585
3,820
Research and development credits
3,982
3,359
Accruals and reserves
1,870
1,127
Deferred revenue and contract costs
432
482
Gross deferred tax assets
31,074
28,184
Valuation allowance
(28,372 )
(25,953 )
Net deferred tax assets
2,702
2,231
Deferred tax liabilities:
Fixed assets and intangibles
(406 )
(317 )
Goodwill
(3,657 )
(3,140 )
Total deferred tax liabilities, net
$
(1,361 )
$
(1,226 )
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future
taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely
than not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of U.S.-based taxable income and loss after
permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the
Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an
annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for
this determination, the Company may need to change the valuation allowance against the gross deferred tax assets. Management determined that a valuation allowance of
$28.4 million and $26.0 million was required as of December 31, 2024 and 2023, respectively.
The valuation allowance changed by $2.4 million during the year ended December 31, 2024. which includes an increase to certain changes in temporary differences
that give rise to deferred tax liabilities related to indefinite-lived intangible assets.
105
At December 31, 2024 and 2023, the Company had available net operating loss carryforwards of approximately $50.0 million and $57.9 million, respectively, for
federal income tax purposes, of which $45.1 million were generated before 2018 and will begin to expire in 2030. The remaining net operating losses of $4.9 million can be
carried forward indefinitely under the Tax Cuts and Jobs Act. The Company continually monitors all positive and negative evidence regarding the realization of its deferred
tax assets and may record assets when it becomes more likely than not, than they will be realized, which may impact the expense or benefit from income taxes.
At December 31, 2024 and 2023, the net operating losses for state purposes are $41.5 million and $42.7 million, respectively, and will begin to expire in 2025 if not
utilized.
As of December 31, 2024, the Company had available for carryover, research and experimental credits of approximately $2.5 million for federal income tax purposes
and $1.9 million for California income tax purposes, which are available to reduce future income taxes. The federal research and experimental tax credits will begin to expire,
if not utilized, in 2027. The California research and experimental tax credits carry forward indefinitely until utilized.
Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, and similar California regulations impose substantial restrictions on the utilization of net
operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating losses and credit
carryforwards may be limited as the result of such an “ownership change” as defined in the Code.
Uncertain Tax Positions
The Company applied FASB ASC 740-10-50, Accounting for Uncertainty in Income Tax, which prescribes a recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An uncertain income tax position will not be recognized if it
has less than a 50% likelihood of being sustained.
A reconciliation of the beginning and ending amounts of unrecognized uncertain tax positions is as follows (in thousands):
Balance as of December 31, 2022
$
1,083
Increases for current year tax positions
187
Decreases for prior year tax positions
(29 )
Balance as of December 31, 2023
1,241
Increases for current year tax positions
178
Increases for prior year tax positions
40
Balance as of December 31, 2024
$
1,459
Of the total unrecognized tax benefits at December 31, 2024, no amount will impact the Company's effective tax rate because the uncertain amounts have a valuation
allowance recorded against them. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements
of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2024 and 2023.
The Company files federal and state income tax returns in the United States, certain United States territories, and certain foreign jurisdictions. The statues of
limitations remain open for 2010 through 2024 for federal and state purposes in the United States. and certain U.S. territories. Years beyond the normal statutes of limitations
remain open to audit by tax authorities due to tax attributes generated in earlier years which are being carried forward and may be audited in subsequent years when utilized.
106
Note 12. Restructuring
In the second quarter of 2024, the Company restructured its workforce and eliminated 3% of its total headcount to more effectively allocate its resources and to reduce
operational costs. Additionally, the Company terminated a building lease early for a location that was no longer in use.
Restructuring expense related to the workforce reduction during twelve months ended December 31, 2024 amounted to $0.3 million, consisting of cash expenditures
for severance and other employee separation-related costs. Restructuring expenses related to the lease termination were $0.1 million, comprising of early termination fees and
monthly rent. These restructuring expenses were recorded in operating expense, net, in the consolidated statement of operations.
As of December 31, 2024, the Company had no restructuring liabilities.
Note 13. Capital Stock
Common Stock
The Company is authorized to issue 500,000,000 shares of common stock with a par value of $0.005 per share. At December 31, 2024 and 2023, there were
12,634,485 and 12,761,448 shares of common stock issued and outstanding, respectively. Holders of common stock have voting rights equal to one vote per share of common
stock held and are entitled to receive any dividends as may be declared from time to time by the Board.
At December 31, 2024, shares of common stock reserved for future issuance were as follows:
Options outstanding
1,774,388
Shares available for future grant
407,810
Unvested restricted stock units
966,131
Total
3,148,329
Preferred Stock
The Company is authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.005. At December 31, 2024 and 2023, there was no preferred stock
issued or outstanding.
Stock Repurchase Program
In May 2019, the Company's board of directors adopted a stock repurchase program for up to $15.0 million of our common stock. In November 2022, the Company’s
board of directors approved a new stock repurchase program for up to $25.0 million of the Company’s common stock. Although the board of directors has authorized the
stock repurchase program, it does not obligate the Company to repurchase any specific dollar amount or number of shares, there is no expiration date for the stock repurchase
program, and the stock repurchase program may be modified, suspended or terminated at any time and for any reason.
During the year ended December 31, 2024, the Company repurchased 418,940 shares of its common stock at an average price of $14.31 per share for a total of $6.0
million under its stock repurchase program. During the year ended December 31, 2023, the Company repurchased 228,782 shares of its common stock at an average price of
$24.41 per
107
share for $5.6 million. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired.
Note 14. Net Income (Loss) per Share
The following table summarizes the computation of basic and diluted net income (loss) per share (in thousands, except share and per share data):
Year Ended December 31,
2024
2023
2022
Numerator:
Net income (loss)
$
(9,180 )
$
(2,718 )
$
6,385
Denominator:
Weighted-average shares outstanding, basic
12,710,236
12,425,132
12,171,609
Weighted-average shares outstanding, diluted
12,710,236
12,425,132
12,317,707
Net income (loss) per share, basic
$
(0.72 )
$
(0.22 )
$
0.52
Net income (loss) per share, diluted
$
(0.72 )
$
(0.22 )
$
0.52
The following potentially dilutive shares outstanding at the end of the periods presented were excluded in the calculation of diluted net income (loss) per share as the
effect would have been anti-dilutive:
Year Ended December 31,
2024
2023
2022
Options to purchase common stock
1,774,388
1,789,431
1,015,497
Unvested restricted stock units
966,131
298,361
97,275
Total
2,740,519
2,087,792
1,112,772
Note 15. Equity Incentive Plans
In February 2005, the Company adopted the 2005 Stock Plan, as amended in January 2010 and November 2012 (the “2005 Plan”). Under the 2005 Plan provisions,
the Company was authorized to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units ("RSUs"), and shares of restricted
stock.
In May 2017, the Board and the Company’s stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”). As a result of the adoption of the 2017 Plan, no
further grants may be made under the 2005 Plan. The 2017 Plan provides for the issuance of stock options, RSUs and other awards to employees, directors, and consultants of
the Company. The 2017 Plan includes an evergreen provision that provides for the number of shares of common stock reserved for issuance under the 2017 Plan to
automatically increase on January 1 of each year by the lesser of (1) 5% of the number of shares of the Company’s common stock outstanding on December 31 of the
preceding calendar year or (2) such number of shares as determined by the board of directors.
The following table summarizes the activity of shares available for grant under the 2017 Equity Incentive Plan:
Shares available for grant at December 31, 2023
1,329,884
Increase in accordance with the evergreen provision
—
Options issued during the year
(121,044 )
Canceled during the year
116,322
RSUs granted
(917,352 )
Shares available for grant at December 31, 2024
407,810
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Stock Options
Incentive stock options may only be granted to Company employees and may only be granted with an exercise price not less than the fair value of the common stock,
or not less than 110% of fair value when the grant is issued to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of
stock. Non-statutory stock options may be granted to Company employees, directors, and consultants, and may be granted at a price per share not less than fair value on the
date of the grant.
Options granted under the 2005 Plan and 2017 Plan generally vest over four years and expire no later than 10 years from the grant date. The 2005 Plan and 2017 Plan
grants the board of directors' discretion to determine when the options granted will become exercisable.
Compensation expense for stock options is based upon the estimated fair value of the awards. The fair value of stock option grants is determined using the Black-
Scholes option pricing model which requires the use of certain assumed inputs. The assumed inputs used to determine the fair value of stock options granted for the years
ended December 31, 2024, 2023 and 2022 are set forth below:
Year Ended December 31,
2024
2023
2022
Fair value of common stock
$11.43-$17.74
$18.74 -$32.89
$16.30-$37.00
Expected term (in years)
6
6
6
Risk-free interest rate
3.91%-4.56%
3.46%-4.80%
1.54%-4.18%
Expected volatility
62%-63%
62%-63%
63%-64%
Expected dividend yield
—
—
—
A summary of stock option activities during 2024, 2023 and 2022 is as follows:
Number
of Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date Fair
Value per Option
Aggregate Intrinsic
Value Exercised (in
thousands)
Outstanding at December 31, 2021
783,928
$
28.00
Granted
557,218
$
27.40
$
16.30
Exercised
(41,819 )
$
12.88
$
778
Canceled
(43,271 )
$
28.85
Outstanding at December 31, 2022
1,256,056
$
28.20
Granted
724,841
$
25.05
$
15.18
Exercised
(19,021 )
$
7.95
$
424
Canceled
(172,445 )
$
31.36
Outstanding at December 31, 2023
1,789,431
$
26.83
Granted
121,044
$
14.66
$
8.92
Exercised
(19,765 )
$
2.97
$
214
Canceled
(116,322 )
$
21.52
Outstanding at December 31, 2024
1,774,388
$
26.62
During the year ended December 31, 2023, the Company modified options to accelerate vesting for two individuals in respect of an aggregate of 6,734 options. The
Company accounted for these as modifications of those
109
awards and recognized net incremental compensation expense of approximately $52,000 during the year ended December 31, 2023. There was no modification in 2024.
Additional information for stock options at December 31, 2024 were as follows:
Number
of Options
Weighted
Average
Exercise
Price
Aggregate Intrinsic
Value (in thousands)
Weighted
Average
Remaining Contractual
term (in years)
Outstanding at December 31, 2024
1,774,388
$
26.62
$
988,843
6.88
Exercisable at December 31, 2024
1,146,417
28.26
$
911,867
6.06
At December 31, 2024, total unrecognized stock-based compensation cost related to unvested stock options was $8.6 million, which will be recognized ratably over a
weighted-average period of 2.2 years.
No income tax benefits from stock-based compensation arrangements have been recognized in the consolidated statements of operations.
Restricted Stock Units
The Company grants RSUs under the 2017 Plan to executive management, its non-employee directors and other directors. RSUs granted to executive management
generally vest over four years, while RSUs granted to non-employee directors generally vest annually. A new non-employee director will receive an initial grant upon joining
the board of directors and all non-employee directors receive new annual grants at each annual meeting of stockholders. Compensation expense for RSUs is based upon the
estimated fair value of the awards on the date of grant.
A summary of RSU activities during 2024, 2023 and 2022 is as follows:
Number
of RSUs
Weighted
Average
Grant Date Fair Value
per RSU
Aggregate Fair Value of
RSUs Vested (in
thousands)
Unvested RSUs at December 31, 2021
128,810
$
35.09
Granted
205,807
$
26.90
Vested
(107,971 )
$
31.88
$
3,129
Forfeited
(2,825 )
$
26.50
Unvested RSUs at December 31, 2022
223,821
$
29.21
Granted
257,447
$
27.79
Vested
(135,235 )
$
29.63
$
3,446
Forfeited
(47,672 )
$
31.08
Unvested RSUs at December 31, 2023
298,361
$
27.58
Granted
917,352
$
17.24
$
15,817
Vested
(210,503 )
$
23.76
Forfeited
(39,079 )
$
18.36
Unvested RSUs at December 31, 2024
966,131
$
19.04
At December 31, 2024, total unrecognized stock-based compensation cost related to RSUs was $10.3 million, which will be recognized ratably over a weighted-
average period of 2.0 years.
During the year ended December 31 2023, the Company modified RSUs to accelerate vesting for one individual in respect of 2,256 RSUs. The Company accounted
for this as a modification of this award and recognized net incremental compensation expense of approximately $28,000 during the year ended December 31, 2023. During
the year ended December 31, 2022, the Company modified RSUs to accelerate vesting for two individuals in respect of 5,849 RSUs and cancelled the award of another
individual in respect of 1,887 RSUs. The Company accounted for these as modifications of those awards and recognized net incremental compensation expense of $0.01
million during
110
the year ended December 31, 2022. The incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original
award immediately before its terms were modified and recognized as compensation expense on the date of modification for vested awards. There was no modification in 2024.
Performance-based restricted stock units
During the year ended December 31, 2024, the Company granted to members of the Company's management team RSU awards with performance-based vesting
conditions (“PSUs”), totaling 544,228 shares at a grant date fair value of $17.74 per share, the closing stock price on the grant date. These PSUs vest in one installment at the
end of three years in 2027, based on the satisfaction of revenue and Adjusted EBITDA performance goals for fiscal year 2026, as determined by the Compensation and
Human Capital Committee of the Board of Directors of the Company. Compensation expense related to the PSUs is estimated each period based on the fair value of the target
stock unit at the grant date and the most probable level of achievement of the performance conditions. Compensation expense related to these awards was approximately $1.3
million and $0.1 million for the years ended December 31, 2024 and 2023.
2017 Employee Stock Purchase Plan
In May 2017, the Board and the Company’s stockholders adopted the 2017 Employee Stock Purchase Plan (“2017 ESPP”).The 2017 ESPP permits the maximum
discounted purchase price permitted under U.S. tax rules, including a “lookback”, which allows eligible employees to purchase shares of the Company’s common stock at a
15% discount to the lesser of the fair market value of common stock at the beginning and end of the offering period.
ESPP offering periods generally run for six months each. An employee’s purchase rights terminate immediately upon termination of employment or other
withdrawal from the 2017 ESPP. No participant will have the right to purchase shares of common stock in an amount that has a fair market value of more than $25,000
determined as of the first day of the applicable purchase period, for each calendar year.
The 2017 ESPP contains a provision which provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (1) 2% of
the total number of shares of common stock outstanding on December 31st of the preceding calendar year, (2) 150,000 shares or (3) such lesser number of shares as
determined by the board of directors. The Company's board of directors turned down the automatic increase to the 2017 ESPP plan for the year ended December 31, 2024.
The following table summarizes the activity of shares available under the 2017 ESPP:
Shares available for grant at December 31, 2023
628,343
Increase in accordance with the evergreen provision
—
Issued during the year
(61,710 )
Shares available for grant at December 31, 2024
566,633
Stock-Based Compensation Expense
Total stock-based compensation expense for all award types is recorded in the consolidated statements of operations and was allocated as follows (in thousands):
Year Ended December 31,
2024
2023
2022
Cost of revenues
$
1,581
$
1,871
$
1,992
Sales and marketing
2,329
1,983
1,754
Research and development
1,188
1,307
1,082
General and administrative
7,030
4,820
3,454
Total
$
12,128
$
9,982
$
8,282
Stock-based compensation expense is recognized over the award’s expected vesting schedule. Forfeitures are recognized as and when they occur.
111
Note 16. Benefit Plan
The Company sponsors a 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of their
compensation to the plan, subject to the limitations under the Internal Revenue Code. The Company is allowed to make 401(k) matching contributions as defined in the plan
and as approved by the board of directors. The Company matched 50% of employee contributions made during 2022 up to a maximum of 2% of compensation; the match will
be deposited to the employees' 401(k) accounts in 2023. During the years ended December 31, 2024, 2023 and 2022, the Company recorded $0.5 million, $0.4 million, and
$0.3 million, respectively, of matching contribution expense. These matching contributions are subject to additional vesting criteria.
Note 17. Leases
The Company leases its principal executive offices in Fremont, California, under a non-cancelable operating lease which expires in February 2027. This lease does not
have significant rent escalation holidays, concessions, leasehold improvement incentives, contingent rent provisions or other build-out clauses. The lease contains an option to
extend the term for an additional period of up to five years subject to certain terms and conditions. The Company elected the practical expedient to group lease and non-lease
components for all leases. Upon lease commencement on October 1, 2021, the Company recognized an operating lease right-of-use asset of $2.0 million and a corresponding
lease liability of $2.0 million, using a discount rate of 3.00%, which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of
commencement.
In April 2020, the Company executed a lease agreement for office space in Washington, DC, under a non-cancelable operating lease that expires in November 2025.
This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain
contingent rent provisions. The lease contains an option to extend the term for an additional five years subject to certain terms and conditions. The Company has elected the
practical expedient to group lease and non-lease components for all leases. Upon lease commencement on May 1, 2020, the Company recognized an operating lease right-of-
use asset of $0.5 million and a corresponding lease liability of $0.5 million, using a discount rate of 3.85%, which reflects the Company’s incremental borrowing rate for a
similar asset and similar term as of the date of commencement.
In January 2022, as part of the Forensic Logic acquisition, the Company acquired the non-cancelable operating leases of Forensic Logic's offices in Walnut Creek,
California and Tucson, Arizona, which expire in June 2025 and February 2026, respectively. The Walnut Creek office lease was early terminated in April 2024. Neither lease
has significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Each lease contains an option to extend the term for an
additional period of five years subject to certain terms and conditions. The Company has elected the practical expedient to group lease and non-lease components for all
leases. In measuring the lease liability upon acquisition, the Company used a discount rate of 3.25% for the Tucson office which reflects the Company’s incremental
borrowing rate for a similar asset and similar term as of the date of acquisition.
In January 2024, the Company executed a new lease in Iselin, New Jersey which commenced in April 2024 and expires in March 2029. The lease has no significant
rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. The lease contains an option to extend the term for an additional period of
three years subject to certain terms and conditions. The Company has elected the practical expedient to group lease and non-lease components for all leases. In measuring the
lease liability upon acquisition, the Company used a discount rate of 7.33% for the Iselin, New Jersey office which reflects the Company’s incremental borrowing rate for a
similar asset and similar term as of the date of commencement.
The operating lease cost recognized for the years ended December 31, 2024, 2023 and 2022, was $1.1 million, $1.0 million and $0.6 million, respectively.
The Company’s operating leases have a weighted average remaining lease term of 2.74 years and weighted average discount rate of 4.5%.
112
Supplemental information related to the operating leases as follows (in thousands):
December 31,
2024
2023
Assets
Operating lease right-of-use assets
$
1,878
$
2,315
Liabilities
Lease liabilities (short-term) (presented within Accrued expenses and other current liabilities)
$
909
$
964
Lease liabilities (long-term) (presented within Other liabilities)
1,142
1,542
Total operating lease liabilities
$
2,051
$
2,506
Year Ended December 31,
2024
2023
Cash paid for amounts included in the measurement of lease liabilities
(presented within Operating cash flows)
$
881
$
1,006
Maturities of the lease liabilities at December 31, 2024 are as follows (in thousands):
2025
$
1,021
2026
716
2027
214
2028
212
2029
35
Total lease payments, undiscounted
2,198
Less: imputed interest
(147 )
Total
$
2,051
Note 18. Commitments and Contingencies
On August 28, 2018, Silvon S. Simmons (the “Plaintiff”) amended a complaint against the City of Rochester, New York and various city employees, filed in the
United States District Court, Western District of New York, to add us and employees as defendants. The amended complaint alleges conspiracy to violate the Plaintiff's civil
rights, denial of the right to a fair trial, and malicious prosecution. In September 2024, SoundThinking was dismissed from the lawsuit.
The Company may become subject to legal proceedings, as well as demands and claims that arise in the normal course of business. Such claims, even if not
meritorious, could result in the expenditure of significant financial and management resources. The Company makes a provision for a liability relating to legal matters when it
is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts
of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter.
An unfavorable outcome on any litigation matters could require payment of substantial damages, or, in connection with any intellectual property infringement claims,
could require the Company to pay ongoing royalty payments or could prevent the Company from selling certain of its products. As a result, a settlement of, or an unfavorable
outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on the Company’s business, operating results, financial
condition, and cash flows.
Note 19. Segment Reporting
113
The Company operates as a single operating segment. The Company’s chief operating decision maker is one individual and has the role of President and Chief
Executive Officer (the "CODM"). The CODM reviews financial information including operating results and assets on a consolidated basis and is regularly provided with only
the consolidated expenses as noted on the face of the income statement. For information about how the Company derives revenue, as well as the Company’s accounting
policies, refer to Note 2—Summary of Significant Accounting and Reporting Policies.
Note 20. Subsequent Events
Management evaluated subsequent events through March 31, 2025, which was the date the financial statements were available to be issued, and determined that there
are no subsequent events to be reported.
114
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13-a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2024, our disclosure controls and procedures were not effective to
provide reasonable assurance that the information we are required to file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of a material weakness in our internal control over financial reporting discussed
below.
Notwithstanding the identified material weakness described below, management does not believe that the material weakness had an adverse effect on our reported
operating results or financial condition and management has determined that the consolidated financial statements and other information included in this report and other
periodic filings present fairly in all material respects our financial condition, results of operations, and cash flows at and for the periods presented in accordance with U.S.
GAAP, and does not modify or change financial guidance provided by the Company.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, 2024 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of
the Exchange Act. Internal control over financial reporting consists of policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our assets; (2) are designed and operated to provide reasonable assurance regarding the reliability of our financial reporting
and our process for the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Our management evaluated the effectiveness
of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control -
Integrated Framework (2013). Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was not effective as of
December 31, 2024 as a result of the material weakness in our internal control over financial reporting discussed below.
A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment of our internal control
115
over financial reporting described above, management identified the following deficiencies that individually, or in the aggregate, constituted a material weakness in our internal
control over financial reporting as of December 31, 2024:
Management identified a material weakness in the design of the controls related to the verification of the completeness and accuracy of data used in schedules
supporting the consolidated financial statements but is confident that the weakness does not modify or change financial guidance provided by the company.
Remediation Plan
We have initiated certain measures to remediate this material weakness, including fully documenting our processes, training our personnel and monitoring our controls,
related to the verification of the completeness and accuracy of data used in schedules supporting the consolidated financial statements. We may need to implement additional
appropriate measures in the future. However, there can be no assurance that we will be able to fully remediate this material weakness or that our remedial actions will prevent
this weakness from re-occurring in the future.
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
116
PART III.
We will file a definitive Proxy Statement for our Annual Meeting (our “Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the
end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the Proxy
Statement that specifically address the items set forth herein are incorporated by reference.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated herein by reference to the sections of our Proxy Statement.
We have adopted a code of business conduct and ethics that applies to our directors, officers and employees. This code of ethics is published on our website at
www.soundthinking.com. If we ever were to amend or waive any provision of our code of ethics that applies to the Company’s principal executive officer, principal financial
officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations, if any, with respect to any such waiver or
amendment by posting such information on our website set forth above rather than by filing a Current Report on Form 8-K.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to the sections of our Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated herein by reference to the sections of our Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference to the sections of our Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference to the section of our Proxy Statement.
117
PART IV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements
We have filed the consolidated financial statements listed in the Index to Consolidated Financial Statements, Schedules, and Exhibits included in Part II, Item 8,
“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
(a)(2) Financial Statements Schedules
All financial statements schedules have been omitted because they are not applicable, not material, or the required information is shown in the Index to Consolidated
Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
(a)(3) Exhibits
See the Exhibit Index below in this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
Item 16. FORM 10-K SUMMARY
None.
118
Exhibit Index
Exhibit
Exhibit
Incorporated by Reference
Filed
Number
Description
Form
File No.
Exhibit
Filing Date
Herewith
3.1
Amended and Restated Certificate of Incorporation
8-K
001-38107
3.1
April 11, 2023
3.2
Certificate of Change of Registered Agent
10-Q
001-38107
3.2
August 10, 2023
3.3
Amended and Restated Bylaws
8-K
001-38107
3.1
November 9, 2023
4.1
Form of Common Stock Certificate
S-1/A
333-217603
4.1
May 19, 2017
4.3
Description of Capital Stock
10-K
001-38107
4.5
March 13, 2020
10.1(#)
ShotSpotter, Inc. Amended and Restated 2005 Stock Plan
S-1
333-217603
10.1
May 2, 2017
10.2(#)
Forms of Option Agreement and Option Grant Notice under the
Amended and Restated 2005 Stock Plan
S-1
333-217603
10.2
May 2, 2017
10.3(#)
SoundThinking, Inc. 2017 Equity Incentive Plan
10-K
001-38107
10.3
April 1, 2024
10.4(#)
Forms of Option Agreement and Option Grant Notice under the 2017
Equity Incentive Plan
10-K
001-38107
10.4
April 1, 2024
10.5(#)
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit
Restricted Terms and Conditions under the 2017 Equity Incentive
Plan
10-Q
001-38107
10.1
November 14, 2023
10.6(#)
Form of Performance- and Service-Based RSU Grant Notice and
Terms and Conditions
10-Q
001-38107
10.2
November 14, 2023
10.7(#)
SoundThinking, Inc. 2017 Employee Stock Purchase Plan
10-K
001-38107
10.7
April 1, 2024
10.8(#)
Form of Restricted Stock Unit Grant Notice for Directors
10-Q
001-38107
10.6
August 14, 2017
10.9(#)
Form of Indemnification Agreement by and between ShotSpotter, Inc.
and each director and executive officer
S-1
333-217603
10.7
May 2, 2017
10.10(#)
Offer Letter between ShotSpotter, Inc. and Ralph A. Clark, dated
March 13, 2017
S-1
333-217603
10.8
May 2, 2017
10.12(#)
Offer Letter between ShotSpotter, Inc. and Alan R. Stewart, dated
March 13, 2017
S-1
333-217603
10.9
May 2, 2017
10.13(#)
Offer Letter between ShotSpotter, Inc. and Nasim Golzadeh, dated
February 20, 2019
10-K
001-38107
10.16
March 4, 2019
10.14
Offer Letter between SoundThinking, Inc. and Erin Edwards dated
September 21, 2023
10-K
001-38107
10.14
April 1, 2024
119
10.15
Lease Agreement between Washington Township Health Care District
and ShotSpotter, Inc., dated August 16, 2021
10-Q
001-38107
10.1
November 15, 2021
10.16
Credit Agreement between Umpqua Bank and ShotSpotter, Inc., dated
September 27, 2018
10-Q
001-38107
10.1
November 14, 2018
10.17
First Amendment to Credit Agreement between Umpqua Bank and
ShotSpotter, Inc., dated May 21, 2019
8-K
001-38107
10.1
May 24, 2019
10.18
Second Amendment to Credit Agreement between Umpqua Bank and
ShotSpotter, Inc., dated August 14, 2020
8-K
001-38107
10.1
August 19, 2020
10.19
Third Amendment to Credit Agreement between Umpqua Bank and
ShotSpotter Inc. dated May 19, 2022.
10-Q
001-38107
10.1
November 9, 2022
10.20
Fourth Amendment to Credit Agreement between Umpqua Bank and
ShotSpotter, Inc. dated September 26, 2022.
10-Q
001-38107
10.2
November 9, 2022
10.21
Fifth Amendment to Credit Agreement between Umpqua Bank and
ShotSpotter, Inc. dated November 23, 2022.
8-K
001-38107
10.1
November 23, 2022
10.22
Sixth Amendment to Credit Agreement between Umpqua Bank and
SoundThinking, Inc. dated February 12, 2024
8-K
001-38107
10.1
February 12, 2024
10.23
Amended and Restated Nonemployee Director Compensation Policy,
dated June 27, 2024
10-K
001-38107
10.1
August 15, 2024
19.1
SoundThinking, Inc. Insider Trading Policy
X
21.1
List of Subsidiaries
10-K
001-38107
21.1
April 1, 2024
23.1
Consent of Baker Tilly US, LLP, Independent Registered Public
Accounting Firm for SoundThinking, Inc.
X
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-
14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-
14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
X
120
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
X
97.1
SoundThinking, Inc, Incentive Compensation Recoupment Policy
10-K
001-38107
97.1
April 1, 2024
101.INS
Inline XBRL Instance Document
X
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded
Linkbases Document
X
104
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
X
# Indicates management contract or compensatory plan.
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-
K), irrespective of any general incorporation language contained in such filing.
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
SOUNDTHINKING, INC.
Date: March 31, 2025
By:
/s/ Ralph A. Clark
Ralph A. Clark
President and Chief Executive Officer
Date: March 31, 2025
By:
/s/ Alan R. Stewart
Alan R. Stewart
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ralph A. Clark and Alan R. Stewart,
jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file
the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
Title
Date
/s/ Ralph A. Clark
President, Chief Executive Officer, and a
Director (Principal Executive Officer)
March 31, 2025
Ralph A. Clark
/s/ Alan R. Stewart
Chief Financial Officer (Principal Financial
and Accounting Officer)
March 31, 2025
Alan R. Stewart
/s/ Pascal Levensohn
Director
March 31, 2025
Pascal Levensohn
/s/ Ruby Sharma
Director
March 31, 2025
Ruby Sharma
/s/ Marc H. Morial
Director
March 31, 2025
Marc H. Morial
/s/ William J. Bratton
Director
March 31, 2025
William J. Bratton
/s/ Deborah Grant
Director
March 31, 2025
Deborah Grant
/s/ Roberta S. Jacobson
Director
March 31, 2025
Roberta S. Jacobson
1.
SOUNDTHINKING, INC.
INSIDER TRADING POLICY
I.Introduction
This policy (our “insider trading policy”) determines acceptable transactions in the securities of SoundThinking, Inc. (the “Company”) and the
securities of other applicable publicly traded companies by our employees and directors and specified consultants. During the course of your service to
the Company, you may receive important information that is not yet publicly available (“inside information”) about the Company or about other
publicly traded companies. Because of your access to this inside information, you may be in a position to profit financially by buying or selling, or in
some other way dealing, in the Company’s stock, or stock of another publicly traded company, or to disclose such information to a third party who does
so profit (a “tippee”).
II.Insider Trading Policy
A.Securities Transactions
Use of inside information by someone for personal gain, or to pass on, or “tip,” the inside information to someone who uses it for personal
gain, is illegal, regardless of the quantity of shares, and is therefore prohibited. You can be held liable both for your own transactions and for
transactions effected by a tippee, or even a tippee of a tippee. Furthermore, it is important that the appearance of insider trading in securities be avoided.
The only exception is that transactions directly with the Company, e.g., option exercises for cash or purchases under the Company’s employee stock
purchase plan, are permitted. However, the subsequent sale (including the sale of shares in a cashless exercise program) or other disposition of such
stock is fully subject to these restrictions. In addition, from time to time, the Company may engage in transactions in its securities. It is the Company’s
policy to comply with applicable laws and regulations relating to insider trading.
B.Inside Information
As a practical matter, it is sometimes difficult to determine whether you possess inside information. The key to determining whether
nonpublic information you possess about a public company is inside information is whether dissemination of the information would likely affect the
market price of the company’s stock or would likely be considered important, or “material,” by investors who are considering trading in that company’s
stock. Certainly, if the information makes you want to trade, it would probably have the same effect on others. Remember, both positive and negative
information can be material. If you possess inside information, you may not Trade (as defined below) in a company’s stock, advise anyone else to do so
or communicate the information to anyone else until you know that the information has been publicly disseminated. This policy also applies to all
family members and other household members of those covered by this policy and all companies controlled by those covered by this policy. You may
never recommend to another person that he or she buy, hold or sell the Company’s securities. This means that in some circumstances, you may have to
forego a proposed transaction in a company’s securities even if you planned to execute the transaction prior to learning of the inside information and
even though you believe you may suffer an economic loss or sacrifice an anticipated profit by waiting. “Trade” includes (i) the purchase, sale or gift of
securities, (ii) engagement in short sales, (iii) transactions in put or call options, (iv) hedging transactions, (v) the purchase of securities on margin, (vi)
the holding of securities in a margin account, (vii) the pledging of stock as collateral and (viii) other inherently speculative transactions.
2.
No employee, director, or consultant, including any person acting on the Company’s behalf, may use social networks, including corporate
blogs, chat rooms, chat boards, Facebook, LinkedIn, Instagram, Reddit, Clubhouse, TikTok, Medium, X, YouTube, the Motley Fool, Raging Bull,
Yahoo! Finance and other non-traditional means of communication to participate in or respond to discussions about the Company or other publicly
traded companies, even if done so anonymously, unless such participation in or responses to such discussions involves information that is publicly
available or immaterial. If there is any uncertainty about whether information is publicly available or is otherwise inappropriate to post, a senior official
or his or her designee should be contacted before posting any such information. This prohibition applies regardless of whether such person accesses the
social network at home or at the office or anywhere else.
Although by no means an all-inclusive list, information about the following items may be considered to be inside information until it is
publicly disseminated:
(a)financial results or forecasts;
(b)material communications with government agencies;
(c)major new products or processes;
(d)acquisitions or dispositions of assets, divisions, companies, etc.;
(e)pending public or private sales of debt or equity securities;
(f)declaration of stock splits, dividends or changes in dividend policy;
(g)major contract awards or cancellations;
(h)pending legislative changes;
(i)top management or control changes;
(j)possible tender offers or proxy fights;
(k)significant writeoffs or material accounting restatements;
(l)significant litigation or settlements;
(m)impending bankruptcy;
(n)gain or loss of a significant contract with a customer or supplier;
(o)pricing changes or discount policies;
(p)corporate partner relationships; and
(q)notice of issuance of patents.
For information to be considered publicly disseminated, it must be widely disclosed through a press release or U.S. Securities and Exchange
Commission (the “SEC”) filing and a sufficient amount of time must have passed to allow the information to be fully disclosed. Generally speaking,
information will be considered publicly disseminated after two full trading days have elapsed since the date of public disclosure of the information. For
example, if an announcement of inside information of which you were aware was made prior to trading on Wednesday, then you may execute a
transaction in the Company’s securities on Friday.
Because the officers and directors of the Company are the most visible to the public and are most likely, in the view of the public, to possess
inside information about the Company, we ask them to do more than refrain from insider trading. Additional restrictions apply to officers, directors and
certain other employees under Section III below.
C.Prohibition of Speculative Trading.
No employee, director or consultant may engage in short sales, transactions in put or call options, hedging transactions, the purchase of
securities on margin, hold securities in a margin account, pledge
3.
securities as collateral or other inherently speculative transactions with respect to the Company’s stock at any time.
III.Additional Restrictions Applicable to Officers, Directors and Other Designated Employees
D.Window Period. Generally, except as set forth in this paragraph A, in paragraph B, in paragraph C and in paragraph F of this Section III,
officers and directors and other members of management with the title of Vice President or above may buy or sell securities of the Company only during
a “window period” commencing on the third business day after general public release of the Company’s annual or quarterly revenues through two weeks
before the end of the quarter. This “window” may be closed early or may not open if, in the judgment of the Company’s Chief Executive Officer or
Chief Financial Officer, there exists undisclosed information that would make trades by members of the Company’s management and directors
inappropriate. It is important to note that the fact that the “window” is closed early or may not open should be considered material nonpublic
information that should not be communicated to any other person. An officer, director or other member of management who believes that special
circumstances require him or her to trade outside the window period should consult with the Company’s Chief Financial Officer. Permission to trade
outside the “window” will be granted only where the circumstances are extenuating and there appears to be no significant risk that the trade may
subsequently be questioned.
i. Exceptions to Window Period.
1.ESPP/Option Exercises. Officers and other members of management who are eligible to do so may purchase stock
under the Company’s Employee Stock Purchase Plan (“ESPP”) on periodic designated dates in accordance with the ESPP without restriction to any
particular period. Directors and officers and other members of management may exercise options granted under the Company’s stock option plans
without restriction to any particular period. However, the subsequent sale of the stock acquired upon the exercise of options or pursuant to the ESPP is
subject to all provisions of this policy.
2.Automatic Sell-to-Cover Transactions. This policy does not apply to the sale of shares of the Company’s securities for
the limited purpose of covering tax withholding obligations and any associated broker or other fees upon settlement of restricted stock units issued by the
Company (a “sell-to-cover transaction”) provided that (i) you irrevocably elect to sell such shares to cover tax withholding obligations in a manner
approved by the Company or (ii) such sell-to-cover transaction is effected pursuant to a sell-to-cover program mandated by the Company.
3.Tax Withholding Transactions. This policy does not apply to the surrender of shares directly to the Company to
satisfy tax withholding obligations as a result of the issuance of shares upon vesting or exercise of restricted stock units, options or other equity awards
granted under the Company’s equity compensation plans.
4.10b5-1 Automatic Trading Programs. In addition, purchases or sales of the Company’s securities made pursuant to,
and in compliance with, a written plan established by a director or officer or other member of management that meets the requirements of Rule 10b5-1
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Plan”) may be made without restriction to any particular period
provided that (i) the Plan was established in good faith, in compliance with the requirements of Rule 10b5-1, at the time when such individual was not in
possession of material nonpublic information about the Company and the Company had not imposed any trading blackout period, (ii) the Plan was
reviewed by the Company prior to establishment, solely to confirm compliance with this policy
4.
and the securities laws, and (iii) the Plan allows for the cancellation of a transaction and/or suspension of such Plan upon notice and request by the
Company to the individual if any proposed trade (a) fails to comply with applicable laws (i.e., exceeding the number of shares that may be sold under
Rule 144 of the Securities Act of 1933, as amended) or (b) would create material adverse consequences for the Company. The Company shall be
notified of any proposed amendments to the Plan or the proposed termination of the Plan prior to such amendment or termination, as applicable.
E.Pre-Clearance or Advance Notice of Transactions. In addition to the requirements of paragraph A above, officers and directors may not
engage in any transaction in the Company’s securities, including any purchase or sale in the open market, loan, gift or other transfer of beneficial
ownership without first obtaining pre-clearance of the transaction from the Company’s Chief Financial Officer at least two days in advance of the
proposed transaction. The Chief Financial Officer will then determine whether the transaction may proceed and, if so, will direct the Compliance
Officer (as identified in the Company’s Section 16 Compliance Program) to assist in complying with the reporting requirements under Section 16(a) of
the Exchange Act. Pre-cleared transactions not completed within five business days shall require new pre-clearance under the provisions of this
paragraph. The Company may, at its discretion, shorten such period of time. Advance notice of an intent to exercise an outstanding stock option shall
be given to the Chief Financial Officer. To the extent possible, advance notice of upcoming transactions effected pursuant to an established 10b5-1
automatic trading plan under paragraph A(i)(4) above shall be given to Chief Financial Officer. Upon the completion of any transaction, the officer or
director must immediately notify the appropriate persons under the heading “Notification of Execution of Transaction” in the Company’s Section 16
Compliance Program so that the Company may assist in the Section 16 reporting obligations.
F.Covered Insiders. The provisions outlined in this Section III apply to all officers and directors and other members of management with the
title of Vice President or above and to such other employees of the Company as the President or the Chief Financial Officer may designate from time to
time because of their access to sensitive Company information. Generally, any entities or family members whose trading activities are controlled or
influenced by any of such persons should be considered to be subject to the same restrictions.
G.Short-Swing Trading/Section 16 Reports. Officers and directors subject to the reporting obligations under Section 16 of the Exchange
Act should take care not to violate the prohibition on short-swing trading (Section 16(b) of the Exchange Act) and the restrictions on sales by control
persons (Rule 144), and should file all appropriate Section 16(a) reports (Forms 3, 4 and 5), all of which have been enumerated and described in a
separate Section 16 Compliance Memorandum.
H.Prohibition of Trading During Pension Fund Blackouts. In accordance with Regulation BTR under the Exchange Act, no director or
executive officer of the Company shall, directly or indirectly, purchase, sell or otherwise acquire or transfer any equity security of the Company (other
than an exempt security) during any “blackout period’’ (as defined in Regulation BTR) with respect to such equity security, if such director or executive
officer acquires or previously acquired such equity security in connection with his or her service or employment as a director or executive officer. This
prohibition shall not apply to any transactions that are specifically exempted from Section 306(a)(l) of the Sarbanes-Oxley Act of 2002 (as set forth in
Regulation BTR), including but not limited to, purchases or sales of the Company’s securities made pursuant to, and in compliance with, a written plan
established by a director or executive officer that meets the requirements of Rule 10b5-1 under the Exchange Act; compensatory grants or awards of
equity securities pursuant to a plan that, by its terns, permits executive officers and directors to receive automatic grants or awards and specifies the terms
of the grants and awards; or acquisitions or dispositions of equity securities involving a bona fide gift or by will or the laws of descent or pursuant to a
domestic relations
5.
order. The Company shall timely notify each director and executive officer of any blackout periods in accordance with the provisions of Regulation
BTR.
I.Prohibition of Trading During Other Blackout Periods. From time to time, the Company may shorten or close the window period set
forth in paragraph A for certain directors and employees if there is material non-public information regarding the Company (such as the negotiation of
mergers, acquisitions or dispositions or new product developments) that is not publicly disclosed. If the Company imposes a special blackout period, it
will notify the persons affected. The existence of a special blackout period should also be treated as confidential information.
IV.Duration of Policy’s Applicability
This policy continues to apply to any Trade in the Company’s stock or the stock of other public companies if you learn material nonpublic
information about a Company that could affect the share price of another publicly traded company even after your employment, directorship or
consultancy with the Company has terminated. If you are in possession of inside information when your relationship with the Company concludes, you
may not Trade in the Company’s stock or the stock of such other company until the information has been publicly disseminated or is no longer material.
V.Penalties
Anyone who effects transactions in the Company’s stock or the stock of other public companies (or provides information to enable others to do
so) on the basis of inside information is subject to both civil liability and criminal penalties, as well as disciplinary action by the Company. An
employee, director or consultant who has questions about this policy should contact his or her own attorney or the Chief Financial Officer. Please also
see the “Frequently Asked Questions” attached hereto as Exhibit A, the content of which is incorporated into this policy.
Adopted: February 13, 2025
Effective: February 13, 2025
A-1.
Exhibit A
Frequently Asked Questions
1.What is insider trading?
Insider trading is the buying or selling of stocks, bonds, futures, or other securities by someone in possession of material nonpublic
information. Insider trading also includes trading in options (puts and calls), the price of which is linked to the underlying price of a company’s stock. It
does not matter how many shares you buy or sell, or whether it has an effect on the stock price – if you have material, nonpublic information and you
trade, you have broken the law.
2.Why is insider trading illegal?
If company insiders are able to use their confidential knowledge to their financial advantage, other investors would not have confidence in the
fairness and integrity of the marketplace. Requiring those who have such information to disclose (the information to the public) or abstain (from trading)
ensures an even playing field.
3.What is material, nonpublic information?
Information is material if it would influence a reasonable investor to buy or sell a stock, bond, future or other security. This could mean many
things – financial results, potential mergers, major contracts, etc. Information is nonpublic if it has not yet been released and disseminated to the public.
4.Who can be guilty of insider trading?
Anyone who buys or sells a security while in possession of material, nonpublic information, or provides material nonpublic information that
someone else uses to buy or sell a security, may be guilty of insider trading. It does not matter if you are not an executive officer or director, or even if
you do not work at SoundThinking, Inc. If you know something material about the value of a security that not everyone else does and you trade (or
convince someone else to trade) in that security, regardless of who you are, you can be found guilty of insider trading.
5.Does SoundThinking, Inc. have an insider trading policy?
Yes.
6.What if I work in a foreign office?
There is no difference. The policy and law applies to you. Because our common stock trades on a U.S. securities exchange, the insider trading
laws of the United States apply. The U.S. Securities and Exchange Commission (the “SEC”) (a U.S. government agency in charge of investor protection)
and the Financial Industry Regulatory Authority (FINRA) (a private regulator that oversees U.S. securities exchanges) routinely investigate trading in a
company’s securities conducted by internationally based individuals and firms. In addition, as a SoundThinking, Inc. employee, director or consultant,
our policies apply to you no matter where in the world you work.
A-2.
7.What if I don’t buy or sell anything, but I tell someone else the information and they buy or sell?
That is called “tipping.” You are the “tipper” and the other person is called the “tippee.” If the tippee buys or sells based on that material
nonpublic information, you might still be guilty of insider trading. In fact, if you tell family members who tell others and those people then trade on the
information, those family members might be guilty of insider trading too. As a result, you may not discuss material nonpublic information about
SoundThinking, Inc. with anyone outside SoundThinking, Inc., including spouses, family members, friends or business associates (unless the disclosure
is made in accordance with SoundThinking, Inc.’s policies regarding the protection or authorized external disclosure of information regarding
SoundThinking, Inc.). This includes anonymous discussion on the Internet about SoundThinking, Inc. or partners with which SoundThinking, Inc. does
business.
8.What if I don’t tell them the information itself, I just tell them whether they should buy or sell?
That is still tipping and you can still be found guilty of insider trading. According to our policies, you may never recommend to another person
that they buy, hold or sell our common stock or any derivative security related to our common stock.
9.What are the penalties if I trade on inside information or tip off someone else?
In addition to disciplinary action by SoundThinking, Inc., which may include termination of employment, anyone found liable in a civil case
for trading on inside information may need to pay the U.S. government an amount equal to any profit made or any loss avoided and may also face a
penalty of up to three times this amount. Persons found liable for tipping inside information, even if they did not trade themselves, may face a penalty of
up to three times the amount of any profit gained or loss avoided by everyone in the chain of tippees. In addition, anyone convicted of criminal insider
trading can face prison terms and additional fines.
10.What is “loss avoided”?
If you sell common stock or a related derivative security before the negative news is publicly announced, and as a result of the announcement
the stock price declines, you have avoided the loss caused by the negative news.
11.Am I restricted from trading securities of any companies other than SoundThinking, Inc. (for example a customer or competitor of
SoundThinking, Inc.)?
Possibly. U.S. insider trading laws restrict everyone from trading in a company’s securities based on material, nonpublic information about
that company, regardless of whether the person is directly connected with that company, except in limited circumstances. Therefore, if you obtain
material, nonpublic information about another company, you should not trade in that company’s securities. You should be particularly conscious of this
restriction if, through your position at SoundThinking, Inc., you sometimes obtain sensitive, material information about other companies that could
affect the share price of such other public traded company.
12.So if I do not trade SoundThinking, Inc. securities when I have material, nonpublic information, and I don’t “tip” other people, I am in the clear,
right?
Not necessarily. Even if you do not violate U.S. law, you may still violate our policies. For example, employees and consultants may violate
our policies by breaching their confidentiality obligations or by recommending SoundThinking, Inc. stock as an investment, even if these actions do not
violate
A-3.
securities laws. Our policies are stricter than the law requires so that we and our employees, directors and consultants can avoid even the appearance of
wrongdoing. Therefore, please review our policies carefully.
13.So when can I buy or sell my SoundThinking, Inc. securities?
According to our policies, if you have material, nonpublic information, you may not buy or sell our common stock until the third trading day
after that information is released or announced to the public. At that point, the information is considered public. Even if you do not have material,
nonpublic information, you may not trade in our common stock during any trading “blackout” period. (The Company provides email updates on
blackout periods as well as post lists of blackout periods in the Company’s office). And finally, all directors and officers must pre-clear any purchases
or sales of stock with the Chief Financial Officer two days in advance of the proposed transaction.
14.If I have an open order to buy or sell SoundThinking, Inc. securities on the date a trading window closes, my broker will cancel the open order
and won’t execute the trade, right?
No (unless it is in connection with a 10b5-1 trading plan (see Question 27 below). If you have any open orders at the time a trading window
closes other than in connection with a 10b5-1 trading plan, it is your responsibility to cancel these orders with your broker. If you have an open order and
it executes after a trading window closes other than in connection with a 10b5-1 trading plan, it is a violation of our insider trading policy and may also
be a violation of the insider trading laws.
15.Am I allowed to trade derivative securities of SoundThinking, Inc.? Or short SoundThinking, Inc. common stock?
No. Under our policies, you may not trade in derivative securities related to our common stock, which includes, but is not limited to publicly
traded call and put options. In addition, under our policies, you may not engage in short selling of our common stock at any time.
“Derivative securities” are securities other than common stock that are speculative in nature because they permit a person to leverage his or her
investment using a relatively small amount of money. Examples of derivative securities include (but are not limited to) “put options” and “call options.”
These are different from employee stock options, which are not derivative securities.
“Short selling” is profiting when you expect the price of the stock to decline, and includes transactions in which you borrow stock from a
broker, sell it, and eventually buy it back on the market to return the borrowed shares to the broker. Profit is made through the expectation that the stock
price will decrease during the period of borrowing.
16.Why does SoundThinking, Inc. prohibit trading in derivative securities and short selling?
Many companies with volatile stock prices have adopted such policies because of the temptation it represents to try to benefit from a relatively
low cost method of trading on short-term swings in stock prices (without actually holding the underlying common stock) and encourages speculative
trading. For this reason, we have decided to prohibit employees from such trading. As we are dedicated to building stockholder value, short selling our
common stock is adverse to our stated values and would not be received well by our stockholders.
17.Can I purchase SoundThinking, Inc. securities on margin or hold them in a margin account?
A-4.
Under our policies, you may not purchase our common stock on margin or hold it in a margin account at any time.
“Purchasing on margin” is the use of borrowed money from a brokerage firm to purchase our securities. Holding our securities in a margin
account includes holding the securities in an account in which the shares can be sold to pay a loan to the brokerage firm.
18.Why does SoundThinking, Inc. prohibit me from purchasing SoundThinking, Inc. securities on margin or holding them in a margin account?
Margin loans are subject to a margin call whether or not you possess insider information at the time of the call. If your margin call were called
at a time when you had insider information and you could not or did not supply other collateral, you and SoundThinking, Inc. could be subject to
litigation based on your insider trading activities: the sale of the stock (through the margin call) when you possessed material nonpublic information. The
sale would be attributed to you even though the lender made the ultimate determination to sell. The U.S. Securities and Exchange Commission takes the
view that you made the determination to not supply the additional collateral and you are therefore responsible for the sale.
19.Can I pledge my SoundThinking, Inc. shares as collateral for a personal loan?
No. Pledging your shares as collateral for a personal loan could cause the pledgee to transfer your shares during a trading blackout period or when you
are otherwise aware of material nonpublic information. As a result, you may not pledge your shares as collateral for a loan.
20.Can I hedge my ownership position in SoundThinking, Inc.?
Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial
instruments such as prepaid variable forwards, equity swaps, collars and exchange funds, and such hedging transactions are prohibited by our insider
trading policy. Since such hedging transactions may permit you to continue to own SoundThinking, Inc.’s securities obtained through employee benefit
plans or otherwise, but without the full risks and rewards of ownership, you may no longer have the same objectives as SoundThinking, Inc.’s other
stockholders. Therefore, our insider trading policy prohibits you from engaging in any such transactions.
21.Can I exercise stock options during a trading blackout period or when I possess material, nonpublic information?
Yes. You may exercise the option and receive shares, but you may not sell the shares (even to pay the exercise price or any taxes due) or
otherwise settle the option during a trading blackout period or any time that you have material nonpublic information, unless pursuant to a sell-to-cover
transaction in compliance with this policy. Also note that if you choose to exercise and hold the shares, you will be responsible at that time for any taxes
due.
22.Am I subject to the trading blackout period if I am no longer an employee of SoundThinking, Inc.?
It depends. If your employment with SoundThinking, Inc. ends on a day that the trading window is closed, you will be subject to the trading
blackout period then in effect. If your employment with SoundThinking, Inc. ends on a day that the trading window is open, you will not be subject to
the next trading blackout period. However, even if you are not subject to our trading blackout period after you leave SoundThinking, Inc., you should not
trade in SoundThinking, Inc. securities if you possess material
A-5.
nonpublic information. That restriction stays with you as long as the information you possess is material and not publicly disseminated released by
SoundThinking, Inc.
23.Can I gift stock while I possess material, nonpublic information or during a trading blackout period?
Because of the potential for the appearance of impropriety, you may not make gifts, whether to charities, to a trust or otherwise, of our
common stock when you possess material, nonpublic information or during a trading blackout period.
24.What if I purchased publicly traded options or other derivative securities before I became a SoundThinking, Inc. employee (or contractor or
consultant)?
The same rules apply as for employee stock options. You may exercise the publicly traded options at any time, but you may not sell such
securities during a trading blackout period or at any time that you have material, nonpublic information. When you become a SoundThinking, Inc.
employee, you must report to our Chief Financial Officer that you hold such publicly traded options or other derivative securities.
25.May I own shares of a mutual fund that invests in SoundThinking, Inc.?
Yes.
26.Are mutual fund shares holding SoundThinking, Inc. subject to the trading blackout periods?
No. You may trade in mutual funds holding our common stock at any time.
27.May I use a “routine trading program” or “10b5-1 plan”?
Yes, subject to the requirements discussed in our insider trading policy. A routine trading program, also known as a 10b5-1 plan, allows you to
set up a highly structured program with your stockbroker through which you specify ahead of time the date, price, and amount of securities to be traded.
If you wish to create a 10b5-1 plan, you must contact the Chief Financial Officer for approval.
28.What happens if I violate our insider trading policy?
Violation of our policies may result in severe personnel action, including a memo to your personnel file and up to and including termination of
your employment or other relationship with SoundThinking, Inc. In addition, you may be subject to criminal and civil enforcement actions by the
government.
29.Who should I contact if I have questions about our insider trading policy?
You should contact our Chief Financial Officer.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Forms S 8 (File Nos. 333-264034, 333 237217, 333 226053 and 333 218712) and Form S 3 (File
No. 333 226052) of SoundThinking, Inc. of our report dated March 31, 2025, relating to the consolidated financial statements, which appears in this annual report on Form 10 K
for the year ended December 31, 2024.
/S/ Baker Tilly US, LLP
Minneapolis, Minnesota
March 31, 2025
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ralph A. Clark, certify that:
1. I have reviewed this Annual Report on Form 10-K of SoundThinking, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial
reporting.
Date: March 31, 2025
/s/ Ralph A. Clark
Ralph A. Clark
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan Stewart, certify that:
1. I have reviewed this Annual Report on Form 10-K of SoundThinking, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial
reporting.
Date: March 31, 2025
/s/ Alan Stewart
Alan Stewart
Chief Financial Officer
Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ralph A. Clark, certify pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of
SoundThinking, Inc. for the year ended December 31, 2024 fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that information contained
in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of SoundThinking, Inc.
Date: March 31, 2025
/s/ Ralph A. Clark
Ralph A. Clark
Chief Executive Officer
Exhibit 32.2
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan Stewart, certify pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of SoundThinking,
Inc. for the year ended December 31, 2024 fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that information contained in such Annual
Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of SoundThinking, Inc.
Date: March 31, 2025
/s/ Alan Stewart
Alan Stewart
Chief Financial Officer